Improvements on Fiat

i. Permissionless Transferability

Stablecoins can be transferred and exchanged peer-to-peer without the need for a central authority or intermediary. This generally allows for faster, cheaper, and more efficient domestic and cross-border transactions. This allows stablecoins to bypass the traditional banking system and its associated fees, restrictions, and delays, giving individuals and businesses greater control over the usage of their funds.

ii. Transparency

Because stablecoins are built on blockchain technology, they offer a level of transparency that is not possible with traditional fiat currencies. Blockchain is a decentralized, digital ledger that records all transactions, allowing anyone to verify the integrity of the system and the balance of any given address. This means that with stablecoins, the public can easily see the total supply of the stablecoin and real-time transaction activity.

The transparency of blockchain transactions, including the ability to view past transactions, enables the public to monitor and detect any potential fraudulent, illegal or unethical activities, even if they occurred years previously. For example, the recent collapse of FTX highlights how public scrutiny can quickly identify discrepancies between statements made by the CEO and the movement of funds from relevant wallets. In the future, this transparency will enable the identification of such activities even more efficiently.

iii. Access to Financial Services

Stablecoins, and other forms of crypto, offer a new level of financial inclusion. Indeed, one of the ways that stablecoins provide financial services to the unbanked and underbanked is through the use of digital wallets. Digital wallets are permissionless software applications that allow individuals to store, send, and receive digital assets such as stablecoins. The key advantage of digital wallets is that they can be easily installed and used by anyone without needing to go through traditional financial intermediaries, making it possible for them to participate in the global economy.

iv. Base-Currency for Crypto Exchanges

The role of stablecoins in the creation of thousands of operational crypto exchanges cannot be understated. In the early stages of the crypto market, exchanges faced enormous difficulty finding banking partners willing to facilitate the transfer of fiat currency in and out of exchanges, resulting in a limited number of operational exchanges. This is because many banks were hesitant to work with exchanges due to regulatory concerns, and the perceived high-risk nature of the crypto industry.

Stablecoins made it possible to have a stable form of value that investors could use to transfer money in and out of an exchange. They have quickly become the preferred method for investors to buy and sell other cryptocurrencies, reducing the risk of price fluctuations and the costs associated with conversion. They have also increased liquidity in the crypto market, which makes it easier for investors to buy and sell assets. Thus, stablecoins became a crucial base-currency in the crypto landscape, making it possible for crypto exchanges to function even without access to traditional banking services.