The Psychology Behind: Rise of Stablecoins

This article is part of a series we are publishing titled “The Psychology Behind…” where we take a social scientific look at some of the underlying phenomenon that is occurring in the world of stablecoins, and the larger blockchain space. 

FOMO. Otherwise known as the fear of missing out is usually applied to young millennials when they are stuck at home studying for an exam while their peers are out dressed in pink leotards at an underground disc jockey (DJ) concert — otherwise known as a rave. But FOMO is an intrinsically driven experience we as humans feel across a wide array of situations. 

But most importantly, FOMO affects you exponentially — not linearly. Here’s an example. 

You’ve had a long week, and are ready to go to bed early on a Friday night. Rob calls and tells you to go to a party with him. Part of you is intrigued, but you decline. An hour later, Amy calls you about the party and tells you there will be free food — something very important to you. Once again, you decline. 30 minutes later George sends you a video showing you how lit the party is, and now the FOMO sinks in. Everything hits a boiling point when your crush, Stephanie, shares a social post about how much fun the party is — what do you do? 

This point, known as an inflection point, can be used to explain much of the recent rise of stablecoins. 

The example we illustrated above is almost exactly what happened to the infamous all-time-high crash of Bitcoin back in 2017–2018. First you heard from your weird crypto friend about how you should buy Bitcoin, then it was another friend, then another. After a while, you heard about it in the news, from celebrities, until… the market crashed. Poof — you missed your chance to go to the party.

But what if there was another party the week after, would you still decide to spend Friday night at home, or would you go check it out? What if it was closer to your home and you knew more people there — what if those facts made you feel more comfortable about going, safer, more… stable? 

In many ways, stablecoins can be seen as the second wave, and the investors and projects involved are riding that wave on the surfboard made by everyone who felt FOMO during the Bitcoin craze. Loss aversion can be a powerful tool, one that drives people to seek out action in the fear of missing out again. What is just as important though however is the simplicity and notion of stablecoins. One USDS equals one USD. That lowers the barrier of entry even further for those who were previously on the fence about Bitcoin’s volatility. 

Simplicity, combined with a fear of missing out and loss aversion have all contributed to propel stablecoins into another stratosphere. But as the old saying goes, what goes up must come down… right?