Stablecoins in Cryptoeconomics: From Initial Coin Issuance to Central Bank Legal Digital Currency -Part 3

c. The role of stablecoins in cryptoeconomics

In theory, stablecoins should facilitate the basic purpose of cryptocurrency serving currency, which is to act as a store of value, a medium of exchange, and a unit of account at the same time.

Although stablecoins function as a store of value and a medium of exchange, the continuous increase in the value of stablecoins and the astonishing growth and decline of other alternative currencies motivate people to hold these assets for speculative purposes. In the context of such volatility, people have an incentive to maintain their expectations of the value of cryptocurrencies instead of choosing to circulate them.

As a supplement to the medium of exchange, stablecoins can also be used as accounting units. In the short term, the stable currency account can be linked to the national account as a digital account unit, while in the long run, it can become an independent account unit.

Concerns about liquidity have led venture capitalists to invest in stablecoin, which may help them because it doesn’t have to keep multiple utility token wallets. Venture capitalists can put most of their money in stablecoins and then exchange them for the desired tokens.

As a supplement to traditional banking services, stablecoins play an important role in strengthening the payment system. In fact, the European Banking Authority (EBA) classifies it into the category of “payment/exchange/currency tokens”, distinguishing it from “investment tokens” and “utility tokens” because it notices that the International Organization for Standards lacks a common classification method.

Finally, the value of stablecoins can be further realized where stability is needed. For smart contracts, stablecoins are a better choice than cryptocurrencies with greater volatility. One of the most important and profitable areas will be smart insurance, which has attracted the interest of large companies such as AXA.