By Cindy Jin, co-founder of Metapoly
It seems as if new cryptocurrency startups and memecoins are launching every other week, and many investors may be concerned that this is leading to a bubble. However, stablecoins take a different approach to creating value in the cryptocurrency space, because they are pegged to something of value, whether it’s to fiat or digital currency. Their value gives stablecoins the edge over other coins in the cryptocurrency ecosystem and a greater potential for longevity.
Stablecoins are now increasingly backed by other cryptocurrency assets and are launching with decentralized organizational structures. With decentralized finance (DeFi) changing the game for investors, anyone with an internet connection can trade in cryptocurrencies without requiring financial middlemen, which is an attractive option for would-be investors disillusioned by the state of the financial world.
Beyond being an attractive option for investment, stablecoins are instrumental for growing the metaverse. There is a need for a unifying currency in the metaverse space, otherwise different platforms’ economies will remain largely disparate from each other. Stablecoins can do more than provide investors a sense of security in their purchase; they also offer interoperability, liquidity, and the sense of stability, as their name suggests.
Stablecoins provide interoperability
Each metaverse platform has a different token with which users can trade land and assets on their metaverse of choice: Sandbox has $SAND and Decentraland has $MANA, with many others employing their own native tokens. The lack of interoperability comes in when users want to engage with another metaverse’s economy and are met with transferability problems. When an investor is interested in trading with a particular coin, they have to go through the process of setting up individual wallets that are compatible with different platforms; this hassle may be compounded by the rules and regulations governing the region in which they live.
Issues of interoperability exist because it’s usually in the interest of a developer, such as an NFT game creator, to only sell their assets rather than improve the overall consumer experience by creating more channels of interoperability. So investors can purchase expensive items on one platform, but won’t be able to trade their assets for profit on another platform where there could be more demand. With more channels of interoperability between metaverse platforms, digital assets should see more utility.
Stablecoins represent a way to solve issues of interoperability by acting as a bridge between different siloed currencies, as they can be used to transfer assets from one platform to another. Tether and USD Coin are widely used in cryptocurrency markets as means of exchange for users to transfer their fiat into cryptocurrency. Stablecoins make it possible for a user to quickly transfer their $SAND or $MANA to another token within the same wallet without incurring exorbitant fees every time there is a transfer.
Stablecoins create liquidity
It’s usually the case that a cryptocurrency investor will buy a coin or digital asset for speculative purposes, hoping that it will gain value over time because, otherwise, there aren’t many opportunities to trade. No one knows for sure if the coin they are holding onto will become the next Bitcoin. This leads to a lack of liquidity when it comes to trading in the digital space because people are more likely to hold onto their assets, particularly assets like plots of land on the metaverse.
Stablecoins solve issues of liquidity because they can be used to purchase other assets without waiting periods. As mentioned above, they enable users to exchange money between cryptocurrency wallets without charging extra fees, and they allow investors to earn interest on coins that have been lent out. The prospect of trading in stablecoins may also attract newcomers who are interested in buying metaverse assets but are not sure about how to ensure liquidity. Stablecoins further increase the opportunities for liquidity across the multiverse economy, because the market for assets expands when more people join in.
Stablecoins encourage stability
It’s no secret that the cryptocurrency market is volatile. Cryptocurrencies are still an emerging asset class, so it can be a difficult task for investors to agree on an acceptable price. The only traditional market forces acting on the cryptocurrency economy are supply and demand, so rampant speculation online – or a social media post by a highly influential public figure – can lead to prices skyrocketing one day and slumping the next. Due to their pegged nature, stablecoins mitigate volatility, and investors are more likely to put their money into stablecoins when other cryptocurrencies are not performing well.
Lawmakers are also looking to regulate this lucrative market, as stablecoins represent a $190 billion slice of the whole cryptocurrency pie. As a medium of exchange, stablecoins require investors’ trust to conduct transactions from fiat to stablecoins, so increased regulation is an important factor for people who would otherwise be concerned about the implications of investing in cryptocurrencies.
The regulation of stablecoins is also good for investments in the metaverse: With stablecoins, the price of a digital asset is much more transparent. With Tether representing a one-to-one exchange with the U.S. Dollar, an investor can know what their Decentraland plot is worth in terms of fiat currency. This makes transacting on the metaverse easier, because potential investors see values they can understand, thereby eliminating a barrier to entry: Confusion about these emerging digital spaces.
Stablecoins represent growth
Stablecoins have many benefits. They can be used across chains, and some of them have gotten financial backing from legacy institutions, making them somewhat of a hybrid currency solution for the metaverse. Because they are secure, stablecoins are seen as more attractive for crypto-skeptics and new audiences who aren’t interested in the standard cryptocurrency tokens and memecoins. The metaverse itself offers more markets for stablecoin investment, and the ease of use of this type of digital currency in the multiverse will lead to future growth for the entire ecosystem.
About the author:
Cindy Jin is the Co-Founder of Metapoly, the first metaverse land bank that helps general consumers drive investment in the metaverse. She is an entrepreneur who is passionate about NFTs and the Web3 space.
Before co-founding Metapoly, she launched Mintology Studio, her own startup in the NFT space. Prior to that, Cindy worked as a commercial lead in e-commerce & digital marketing corporations including IPG and the Lane Crawford Joyce Group. She has been involved in crypto investment personally since 2017.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.