Holding Steady: The Rise of Stablecoins

A stablecoin primer from Grayscale Research, examining the evolution of stablecoins from their earliest beginnings to the functions they currently serve in the wider cryptocurrency ecosystem.

Abstract:

“Stablecoins are digital assets that are pegged to the value of a fiat currency or commodity, such as the US dollar or gold. By bringing fiat currencies, like the US Dollar, onto a blockchain, stablecoins intend to provide a fixed currency that can be traded against or used as a reliable store of value without requiring on-chain assets to be converted back into USD. “Intended” is the operative word. In the past, stablecoin projects have experienced multiple depegging events, resulting in damages that have varied from a few million dollars to a staggering $60 billion.

Grayscale believe that the growth of stablecoins was primarily driven by the need for centralized and decentralized exchanges to access stable USD trading pairs, as evidenced by the correlation between stablecoin issuance and BTC/ETH trade volume. Increasingly, users seemed more incentivized to hold stablecoins – especially since stablecoins occasionally offered competitive yields relative to traditional USD deposits.

But Grayscale also believe that stablecoins have the potential to be transformative far beyond trading applications. These tokens can provide access to USD outside of the local banking system — a potential game-changer for those living in highly inflationary environments. Consider countries like Venezuela or Argentina, where citizens face staggering year-over-year inflation rates of 114% and 79%, respectively.

17 March 2023

Holding Steady: The Rise of Stablecoins (Stablecoin Primer, Grayscale Research)