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Why are Stablecoins so popular these days?!

Categories: GeneralPublished On: October 26th, 20202.9 min read

You know that old saying in real estate about location being everything? Well, the same monotonic principle can arguably be applied to the rise of stablecoins recently. But instead of location, the key has been timing.

Humans are evolved to have myopic points of views, both when we look forward and backward in time. This is by design, as our prefrontal cortex forces us to focus more on the immediate moment for our survival rather than taking a step back and looking at the bigger picture. The rise of stablecoins can be explained clearly if you take a step back and look at the spike in mainstream Bitcoin craze back in 2017. At its peak, one single Bitcoin commanded almost $20,000 — attracting billions of eyeballs around the world onto the blockchain and crypto space. With the eyeballs came investments, failed projects, and eventually the stabilizing slope of innovation we trudge along now.

Once enough interest was devoted to blockchain, innovation was bound to happen as different projects tried to overcome unique obstacles faced by the entire industry. One of these obstacles was the usability of digital currencies, a problem that has been chipped away but is very much still prevalent today. This is where we got our first glimpse of the value of stablecoins.

By pegging a stable digital currency to a real asset like the USD or the Euro, we already have made stablecoins more “useful” than utility digital currencies. Another attribute of human evolution is risk aversion, an incredibly simple but important problem that stablecoins solve. By giving us mental stability, not only do stablecoins automatically provide utility (ease of mind), but they have also become a bridge between the digital token world and the fiat world.

Imagine there are two islands. Island ‘NEW’ holds the splendor and possibilities that digital currencies promise, and the other ‘OLD’ island holds all the real world usage and financial institutions that have governed and protected us for thousands of years. Unfortunately, most people live on OLD island and the only way to reach the NEW island is by swimming over yourself amongst sharks and other risks. Some have done it, sure — for most of the people on the OLD island to venture over, it will be bybridge or stable boat.

Now, going back to the timing of things. It is hard to argue with the paradigm shifts we are seeing globally across our social, digital and personal lives. Millennials are growing disconnected from traditional financial institutions, fearing high fees and a lack of transparency. This exodus in users means an exodus in money, something traditional financial institutions fear dearly. How does the OLD island prevent this, or at the very least, benefit from it? By building a bridge of course. This bridge, paid for and sponsored by the OLD island is the reason we are seeing more and more stablecoin projects these days.

More institutional money than ever is being invested in stablecoins, because it is in their self-best interest to do this. This isn’t necessarily a bad thing, but rather something due to the current timing of both technological innovation and global circumstances.

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