What Is The Reason Behind The Popularity Of Stablecoins In 2021?

However, as more investors, traders, and institutions are starting to take advantage of their benefits, the market capitalization of top stablecoins has increased from March 16, 2019’s $2.59 billion to $37.6 billion by March 16, 2021, according to Messari’s data.

But what are the reasons behind the rising popularity of these crypto tokens in 2021?

1. Exchange Trading

Before adopting stablecoins, crypto exchanges used fiat on- and offramps to facilitate trading on their platforms.

However, doing so is a resource-intensive process that comes with increased costs.

On the other hand, stablecoins allow crypto exchanges to provide cost-efficient and easy exposure for their users to cryptocurrency pairs without converting their funds into fiat currencies.

For that reason, most exchanges have added multiple stablecoin-crypto pairs to their digital asset trading platforms.

2. Cross-Border Payments

International transactions are traditionally slow and expensive as they have to go through multiple intermediaries before reaching the recipient.

On the other hand, blockchain cross-border payments completely lack third parties. Therefore, they are more efficient, cheaper, and faster than their traditional counterparts.

However, since Bitcoin and most cryptocurrencies are highly volatile, they are not well-suited for blockchain-based cross-border payments.

At the same time, while they have a consistent value, stablecoins feature the same transfer-related benefits as other digital assets.

For that reason, they are excellent for blockchain cross-border payments.

3. Crypto Lending Platforms

In addition to cross-border payments and trading, stablecoins are increasingly used on crypto lending platforms.

To avoid high fees as well as compliance with strict KYC and AML requirements, instead of fiat currencies, many borrowers chose to borrow stablecoins against their digital asset holdings to gain access to extra capital.

4. Safe Haven Assets

Since they lack the high volatility of other digital currencies, many consider stablecoins as safe haven crypto assets.

And for a very good reason.

When Bitcoin and other cryptocurrencies are highly volatile, investors and traders can convert their digital assets into stablecoins to hedge against the crypto market’s risks without withdrawing their coins from their bank accounts.

5. Crypto CBDCs

It’s also important to mention central bank digital currencies or CBDCs, crypto assets that are controlled by governments.

Crypto CBDCs are basically stablecoins issued by a country’s central bank and pegged to the nation’s fiat currency.

In recent years, many governments have been exploring and developing their crypto CBDCs, with leaders in the field including China and Sweden, among major economies.

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