The algorithmic stablecoin DJED is scheduled to launch in January 2023. The USD-backed stablecoin USDA is planned to be launched in Q1 2023. Stablecoins can maintain stable purchasing power in the medium term. They allow the creation of a stable economic environment and financial services that can be an alternative to traditional banking services. Not surprisingly, stablecoins are the cornerstone of any DeFi ecosystem. Deloitte did a survey in 2022 that found nearly 75% of retailers plan to accept payments in cryptocurrencies or stablecoins in the next two years. Most retailers that accept cryptocurrencies also plan to accept stablecoins. Are stablecoins only for DeFi users, or can they be an alternative for regular users who are not interested in holding volatile cryptocurrencies? Let's think about it. TLDR People will not be paying with volatile cryptocurrencies in the next few decades. Stablecoins allow you to buy goods instantly without waiting for a better exchange rate. Stablecoins will have a positive impact on the number of new users and thus the number of transactions. 1 USD in a bank account is different from 1 USD in stablecoins. Stablecoin is a mediator between the current world and the new one. High volatility is a usability killer People believed, and many are still convinced, that cryptocurrencies will replace fiat currencies and be commonly used for payments. One thing is for sure, if it ever happens, it will take several decades. Among cryptocurrency fans, we find different groups that behave differently. A small proportion of cryptocurrency fans actually pay with cryptocurrencies. However, the majority of cryptocurrency holders merely hold them and continue to use fiat currencies for normal financial transactions. This behavior is logical and expected. The reality is that in a bear market, when the value of cryptocurrencies regularly drops every month, it makes no sense at all to spend them. Imagine if a regular user took 1,000 USD and bought a volatile cryptocurrency in order to use it for regular payments the following few months. He could very likely only have, say, 900 USD to spend. He would lose 100 USD because of the volatility. Economically, this experiment makes no sense and most people would not be willing to undertake it. The decisions most people on the planet will make will be made for economic reasons. Only a marginal part of the population will have other reasons, such as getting away from the state, the desire to remain anonymous, or the love of alternatives. You could argue that in a bull market, the value of the cryptocurrency could rise, leaving the user with, say, 1,100 USD to spend. He could afford to spend more. The experiment would be economically beneficial to everyone. That may be true, but money needs to have the same properties all the time. Moreover, the user might want to speculate on further growth, so he might want to postpone consumption until later. Probably might want to time the market and try to sell at the top. No one can tell you whether the purchasing power of cryptocurrencies will be higher or lower in a year. We're not talking about units of percentages, but tens of percentages up or down. If you wanted to do the experiment described above, you would have to take a risk. Believe me, most people on the planet will not take such a risk without good reason. What has been the willingness to spend cryptocurrencies so far? The number of people holding cryptocurrencies is estimated at 350M. Bitcoin processes roughly 250,000 transactions a day. This means that the average bitcoiner makes roughly 4 bitcoin transactions per year. These transactions are very likely related to interacting with an exchange, or opening LN channels. On-chain transactions will not be used for payments. Those who want to pay with cryptocurrencies today without restrictions must use payment cards issued by centralized services. These cards will allow paying for goods with fiat currency and users will have cryptocurrencies deducted from their accounts. Users have to monitor the exchange rate themselves and make sure that it is economically viable for them to use the card at any given time. What problem do stablecoins solve? Like ADA coins, no one in the world can take your stablecoins away from you if you have them in your own Cardano wallet. No one can stop you from signing a transaction and sending the stablecoins to the other side of the planet for a standard fee. All stablecoins will be available wherever the internet is. Stablecoins have the same properties as native coins in terms of blockchain technology. If you're a fan of cryptocurrencies mainly for self-custody reasons, stablecoins behave just like ADA coins. Cardano employs a so-called multi-asset ledger. Meaning tokens are stored directly in the ledger. Stablecoins require trust in either an algorithm in the case of DJED or a third party in the case of USDA. Unlike ADA, there must be additional mechanisms to ensure that stablecoins maintain their expected value. The biggest advantage of stablecoins is that they can retain stable purchasing power. This solves one of the biggest problems of cryptocurrencies, which is high volatility. You could argue that volatility is not a problem for cryptocurrencies. It depends on the context. In terms of real-world use for financial services, high volatility is a serious impediment. From a long-term investment perspective, it is less of a problem because the rise or fall in value is expected over a given horizon. For Westerners, stablecoins are not meant to hold value for the long term. For people from countries that have a problem with the high volatility of national fiat currencies, stablecoins may be a much better store of value. For remittances, stablecoins will always be a better option than cryptocurrencies. The manufacturer is able to express the value of the car. If he wants to sell them, he must communicate the value to all buyers. The value cannot change every week or month. The value must be stable for at least say a year. Imagine how people would react if the value of a car was 200,000 ADA in January, 210,000 ADA in February, and 190,000 ADA in March. Everyone who bought a car in January and February would be upset that they paid more than those who bought it in March. You must not regret spending the money immediately if you want to buy some goods. Stablecoins have exactly this feature. Remember our experiment where a user bought a cryptocurrency for 1000 USD? If he had bought a stablecoin instead, he would not have been exposed to volatility risk. From a purchasing power perspective, a western user would not know the difference between a fiat currency and a stablecoin. Importantly, users might be willing to do such an experiment if they had some other reason to do so. It is realistic to expect stablecoins to be used more than cryptocurrencies for everyday payments. In addition, stablecoins will enable the emergence of alternative financial services. If you know the reasons for the collapse of most of the big CeFi services in recent years, it must be clear to you that the potential is huge. How will the Cardano ecosystem benefit from stablecoins? Stablecoins will primarily be used by people holding cryptocurrencies. This is logical, as these people have experience using blockchain technology. We expect people to exchange ADA for stablecoins more frequently depending on market cycles. This is very beneficial for the reason that they will not be dependent on centralized exchanges. Stablecoins are an essential part of all credit protocols. Lending for a longer period of time only makes sense if the value of the asset does not change. We expect the growth of lending platforms that will allow lending to be built on stablecoins only. Cryptocurrencies will not be used to secure the loan. Instead, they will work with people's real identities. Of course, it will be possible to take out loans against volatile cryptocurrency and risk margin calls. Users do not face volatility when using conventional banking services. The same will be true for the blockchain industry. Alternative services on Cardano will be open to people who today avoid cryptocurrencies precisely because of volatility. Fear of new technology and unclear regulations will still be a significant barrier to mass adoption. However, 2023 may be the year when a lot of things become clear and things move somewhere. It is important to note that whatever the regulations in the West, people in developing countries have very different reasons for using stablecoins. In these countries, the adoption of stablecoins and DeFi can be unexpectedly fast. All the more so if it is supported or not hindered by governments. Holders of stablecoins will have a need to spend them and it will be profitable for merchants to accept them. There are 2 important questions in this regard. What stablecoins will merchants accept and what networks will be used to do so? DJED and USDA will be new players throughout 2023. Traders will primarily be preparing for the already established USDT and USDC stablecoins. We expect it will be common to use stablecoins for payments in stores in 2025 at the earliest. The big unknown is what networks merchants will use and how. I can't imagine that every merchant would be technically capable of supporting all existing nodes of all major networks, plus various second layers. Stablecoins significantly increase the utility of networks and will have a positive impact on the number of new users and thus the number of transactions in the Cardano ecosystem. The overall TVL will also increase. If people start using DJED, a portion of ADA coins in some proportion to minted stablecoins will be locked by the Djed algorithm. This could have a positive effect on the growth of the value of ADA coins. The Cardano wallet will be an entry into the world of finance and entertainment. The wallet will not only be used to pay for goods and services but will allow access to other financial and social services on the Internet. A bank account is basically just used to allow you to send money somewhere. Payment cards fulfill the same purpose. However, a regular bank account will not allow you to exchange fiat currency for cryptocurrency, buy stocks or NFTs, or take out a loan. The Cardano wallet allows all of this. A blockchain wallet allows you to control not only financial flows but to work with private data, keep your financial history, exchange one asset for another, subscribe to a paid service, etc. Stablecoins will allow easier merging with the current financial world, but at the same time open up new possibilities that will come from a decentralized world. This is something that a bank account will never be able to do. Things have an inherent value that people perceive in their local fiat currencies. That won't change in the next decade at least. But what will change is the carrier of that value and the networks over which the values will be transmitted. 1 USD is 1 USD whether you hold it as a bill, in a bank account, or as a stablecoin. The difference is what each form allows you to do. Only stablecoin in a Cardano wallet will give you the benefits described above. Buying cryptocurrency with fiat money basically means entering a payment order to transfer money to an exchange. There you buy it. You can then transfer cryptocurrency into your own wallet. If you think of shares instead of cryptocurrency, it's basically the same thing, except that you'll probably leave the shares on the platform. In 5-10 years everything will be different. From a blockchain wallet, you simply enter 1 purchase order and it will be executed instantly. All the time you will have everything in your wallet. It doesn't matter if you buy cryptocurrencies or stocks with stablecoins. People will see obvious benefits in using stablecoins and this will in turn boost Cardano. In other words, if the concept of decentralization, along with tokenization and Web3, takes hold, Cardano will be one of the platforms on which a new version of the internet will be born. Decentralization is not just about volatile native coins. It enables much more and the biggest changes are yet to come. Stablecoins are a mediator between the current world and the new one. Adoption takes time People tend to overestimate the pace of adoption. It's important to remember that DJED and USDA will primarily only be used by fans of the Cardano ecosystem. The Binance exchange will be keen on pushing its own stablecoin BUSD, so don't expect it to leverage competing alternatives. Other exchanges may take a similar approach. Activity on the Cardano network is growing literally every month and stablecoins will have a very positive impact on further growth. However, we will only see a major shift with the advent of the bull market, when people are generally more willing to test alternatives and use DeFi services. We have written that we expect the greatest use from people from developing countries. It is important to note that stablecoins from the Cardano ecosystem will compete with existing ones. Those who have needed stablecoins in recent years have used USDT, USDC, and DAI. Switching to another stablecoin is essentially changing platforms. Fortunately, the adoption of cryptocurrencies and stablecoins is still in the very beginning, so everything is open. However, the reality is that during a bear market, we can't expect any major changes in terms of current market share. Most people wait and do nothing. We expect the fastest adoption from developing countries, but even in this case, it is important to be patient. It can take years for merchants to learn how to use stablecoins. Governments and efforts from the Cardano Foundation along with the IOG can speed up adoption a lot, but we are definitely in the order of years, not months. It is important to note that most people on the planet are still very skeptical about cryptocurrencies in general. In your opinion, are the estimated 350M cryptocurrency holders a lot or a little in the context that almost every person on the planet has heard of them? Make up your own mind. But the fact is that most of these people don't hold cryptocurrencies in their own wallets. A large portion of users is afraid to use blockchain transactions because the mistakes are irreversible. It may be that further innovations and UX simplifications are needed before greater adoption is possible. Although USD-backed stablecoins are now more preferred by users, algorithmic ones may prevail in the long run. This is because they are more decentralized and have the potential to replace central banks. The advent of CBDCs may change a lot in terms of the perception of stablecoins. People are afraid of CBDCs because of the loss of control over money. Stablecoins may be the perfect solution. This technology can still surprise us a lot and be very useful for us. Conclusion DJED and the USDA will be a huge addition to the Cardano ecosystem and DeFi will move forward in a big way as a result. However, it may take a year for stablecoins to gain the trust of users. For DJED, it may take longer due to less trust in algorithmic stablecoins. USD-backed stablecoins have gained more fanfare. Stablecoins are a necessary condition for the growth of lending platforms and other financial services. CeFi services have collapsed and are very unlikely to gain the trust of new users. All people expect the emergence of decentralized alternatives. This is a big opportunity for Cardano. It is expected that a new group of stablecoin users will emerge who will not be interested in holding cryptocurrencies. This group may be larger than the group of cryptocurrency holders. People from poor regions do not have the financial means for long-term investment, but they need to have a working currency. For them, stablecoins can be very useful.
