Stablecoins have indeed been quite popular recently, with prices fluctuating. Of course, due to the surge, everyone is paying more attention, and the hype in the market has increased interest. There are indeed many opportunities within, but there are also some risks. Recently, many people have come to consult me, wanting to understand what is going on. Today, I want to discuss the topic of stablecoins, exploring their origins and the opportunities and risks behind them.
The term stablecoin actually contains two layers of meaning: one layer is 'stability', and the other is 'currency', which is the literal meaning. But in reality, a stablecoin is a type of digital currency, and this must be made clear. It shares similarities with Bitcoin, as both are network currencies, but the difference lies in their legal status and requirements. Stablecoins belong to network currencies, corresponding to fiat currencies or sovereign currencies, which refer to currencies like the US dollar and Chinese yuan that are backed by the state.
Stablecoins are a class of crypto digital assets aimed at maintaining relative price stability, usually achieved by pegging to fiat currencies (such as the US dollar), commodities (like gold), or other low-volatility financial assets. Based on the anchoring mechanism, stablecoins can be divided into three categories: first, fiat-collateralized: such as USDT and USDC, pegged to the US dollar. Second, crypto-collateralized: such as DAI, pegged to the US dollar, generated by over-collateralized crypto assets (like ETH). Third, algorithmic stablecoins: such as FRAX and AMPL, which adjust supply through algorithms to maintain price stability.
Stablecoins have become an important part of the crypto financial system, with their functions mainly concentrated in four areas: first, as a medium of exchange. Widely used in scenarios like peer-to-peer payments, cross-border remittances, and goods trading. Second, as a store of value. Can be used as a means to avoid volatility in the crypto market. Third, as a unit of account. Used to measure the value of other crypto assets or goods as a pricing unit. Fourth, as a financial infrastructure function. In ecosystems like DeFi, NFTs, and GameFi, serving as liquidity provision tools, collateral, and yield calculation units.
Many people do not understand why stablecoins are constantly being speculated upon, because it is a clear big cycle logic, with grand narratives + dual catalysts! One is national financial security, and the other is reshaping Hong Kong's status as a financial center, possessing all the conditions for a big cycle.
