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8 Common Questions About Stablecoins
During the research on stablecoins and conversations with others, several questions have continuously emerged. Now, summarizing them in a FAQ format makes this topic easier to understand.
It is important to emphasize again that stablecoins are rapidly evolving financial technology tools that are still in a very early stage, and this article strives to provide fact-based and researched information to the best of its ability.
1. Will stablecoins replace cash or bank cards?
No. Stablecoins are primarily used in the crypto space and for inter-business transactions, with a very low retail payment application rate (less than 5% of consumer transactions in 2024), and cannot currently replace cash or bank cards.
2. Why are retail giants pushing for stablecoins?
The core reason is to reduce costs and increase efficiency: stablecoin settlement fees are below 0.1%, allowing bypassing of traditional payment channels and intermediaries, making them suitable for small transactions. However, they face multiple challenges such as regulation and operations.
3. Can stablecoins replace credit card networks?
Not in the short term. Credit cards have significant advantages in terms of ubiquity (accepted by over 80 million merchants worldwide), user trust (refunds, fraud protection, etc.), and experience, which stablecoins have yet to reach.
4. Why are stablecoins “stable”?
They rely on arbitrage and redemption mechanisms: when the price deviates from $1, traders adjust supply and demand by buying low for redemption or minting to sell, prompting the price to revert. Different types of stablecoins (fiat-collateralized, crypto-collateralized, algorithmic) have varying risks.
5. Is USDT safe? What about the impact of a collapse?
There are risks; its issuance is often outside of US regulation. Although reserves are primarily in US Treasury bonds, redemption or reserve issues could trigger panic. A collapse would impact the global crypto market.
6. Can stablecoins withstand inflation?
No. They are pegged to fiat currencies and will depreciate along with the anchored currency, only able to hedge against cryptocurrency volatility, not inflation.
7. Will stablecoins replace SWIFT?
Not directly, but they can substitute some demand. SWIFT is slow and costly, while stablecoin transactions are fast, do not require intermediary banks, and are programmable, making them a reliable alternative in cross-border scenarios.
8. Are stablecoins likely to be involved in illegal uses?
The risk is relatively low: in 2023, only 0.24% of crypto transactions were linked to illegal activities, and transactions are traceable, with regulatory tools in place, making them easier to track compared to cash.
During the research on stablecoins and conversations with others, several questions have continuously emerged. Now, summarizing them in a FAQ format makes this topic easier to understand.
It is important to emphasize again that stablecoins are rapidly evolving financial technology tools that are still in a very early stage, and this article strives to provide fact-based and researched information to the best of its ability.
1. Will stablecoins replace cash or bank cards?
No. Stablecoins are primarily used in the crypto space and for inter-business transactions, with a very low retail payment application rate (less than 5% of consumer transactions in 2024), and cannot currently replace cash or bank cards.
2. Why are retail giants pushing for stablecoins?
The core reason is to reduce costs and increase efficiency: stablecoin settlement fees are below 0.1%, allowing bypassing of traditional payment channels and intermediaries, making them suitable for small transactions. However, they face multiple challenges such as regulation and operations.
3. Can stablecoins replace credit card networks?
Not in the short term. Credit cards have significant advantages in terms of ubiquity (accepted by over 80 million merchants worldwide), user trust (refunds, fraud protection, etc.), and experience, which stablecoins have yet to reach.
4. Why are stablecoins “stable”?
They rely on arbitrage and redemption mechanisms: when the price deviates from $1, traders adjust supply and demand by buying low for redemption or minting to sell, prompting the price to revert. Different types of stablecoins (fiat-collateralized, crypto-collateralized, algorithmic) have varying risks.
5. Is USDT safe? What about the impact of a collapse?
There are risks; its issuance is often outside of US regulation. Although reserves are primarily in US Treasury bonds, redemption or reserve issues could trigger panic. A collapse would impact the global crypto market.
6. Can stablecoins withstand inflation?
No. They are pegged to fiat currencies and will depreciate along with the anchored currency, only able to hedge against cryptocurrency volatility, not inflation.
7. Will stablecoins replace SWIFT?
Not directly, but they can substitute some demand. SWIFT is slow and costly, while stablecoin transactions are fast, do not require intermediary banks, and are programmable, making them a reliable alternative in cross-border scenarios.
8. Are stablecoins likely to be involved in illegal uses?
The risk is relatively low: in 2023, only 0.24% of crypto transactions were linked to illegal activities, and transactions are traceable, with regulatory tools in place, making them easier to track compared to cash.
Disclaimer: Includes third-party opinions. No financial advice. May include sponsored content. See T&Cs.