Price-stable cryptocurrencies, commonly referred to as stablecoins, have received a significant amount of attention recently. Much of this has been in hopes that they can fix some of the issues with cryptocurrency—most notably price instability. However, little analysis has been done with respect to the drivers and investment potential of stablecoins. Stablecoins fulfill different functions of money based on their implementation. As a result, they have unique trade-offs from one another and from physical currency (fiat) itself. Stablecoins offer a similar value proposition to fiat, but the two should not be compared on a one-to-one basis as stablecoins contain unique trade-offs and benefits. These differences will drive the demand for these tokens while enabling specific use cases.
The purpose of this paper is to shed light on the adoption and the potential of market share growth for stablecoins given five selected use cases: dollarization, smart contracts, peer to peer (P2P) and peer to business (P2B payments), safe haven for exchanges, and as a reserve currency. We will discuss the opportunities within each of these use cases and assess the factors which will determine the success of stablecoins. Using insights contained in this paper, technologists can think about how best to position themselves in the short, medium, and long term.