Author name: @nobumei (https://twitter.com/nobu_mei)
<aside> 💡 This page describes Stablecoin, which is pegged in value to legal tender.
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In the previous sections, we have explained DeFi. This section deals with Stablecoin.
Stablecoin is a cryptocurrency pegged to a legal tender or dollar and fixed in value. As the name "Stable" implies, Stablecoin is designed to have a price that does not move, and there are various types of Stablecoin depending on the issuer and issuing method.
Diem (formerly known as Libra), which was abandoned after a Facebook-led attempt to issue it, was also designed as a Stablecoin.
Stablecoin group whose value is pegged to legal tender
Crypto assets have been criticized for being too volatile in price to be used for settlement. This is based on the fact that "currency" basically needs to satisfy the following three elements
If an item that could be purchased yesterday for 1 BTC now requires 1.5 BTC due to the drop in the value of BTC, it is obvious that it cannot be used as currency. The "preservation of value" requirement is not satisfied. Even BTC, which is becoming recognized as digital gold, is too volatile to be used for general settlement. Cryptocurrencies like Stablecoin are needed to be used as payment currencies, but it will take a long time before the use of cryptocurrencies for payments becomes common.
So where is Stablecoin used? Currently, it's DeFi.
The momentum of Stablecoin is obvious in the graph, with over $141B in Stablecoin issuance as of October 2022. Demand has been increasing steadily, and we can see that the number of issuances has been increasing since around 2020, when DeFi began to gain momentum.
It is also important to look at Stablecoin's market share. At present, USDT issued by Tether holds 48% of the global market share, but this share is decreasing, and USDC is growing, which is the trend in this industry.
Total Stablecoin issuance (left) and market share (right) | The Block
Stablecoin is used in DeFi because it avoids the high volatility risk of cryptocurrencies and benefits from DeFi's high profitability. With cryptocurrencies and low volatility, Stablecoin can manage funds in DeFi more efficiently than in CeFi, which takes advantage of the blockchain's benefits of tamper resistance, smart contracts, and programmability elements.