Stablecoins in the Face of Inflation

In places where local currencies are shaky, stablecoins like USDT can help people keep their money safe from inflation. For a lot of folks, these aren’t just tools for trading but actual lifesavers. This really highlights how crypto can step up to solve real issues when the traditional banking system falls short. But it also brings up some big questions about who’s in charge and how these things are regulated. Are stablecoins gonna become the go-to cash in inflation-hit areas, or will they just remain for traders?

Some people in developing nations and underdeveloped nations are using stable coins as a hedge against inflation and not onky for traders. But people from well developed nations and some developing and underdeveloped countries still see USD that they are pegged with as an inflationary currency and which is true. So that makes them prefer other RWA that are pegged with assets like gold while most people in crypto prefer bitcoin as the hedge against inflation.

The problem with pegging to fiat as a hedge against inflation is that fiat not only is inflationary but quite possibly ought to be and/or needs to be inflationary. Inflation provides a mechanism whereby everyone has to keep running faster and faster just to keep up, thus increases the "competition" that capitalism is so fond of. It helps make sure businesses that don't keep working harder and harder and harder, more and more efficiently, fade away to leave room for more-efficient, harder-working ones. It is a little like land tax maybe in that it helps ensure the resource, in this case money, is being put to efficient/effective/useful use. Since fiats always go down in value over time, it seems pretty clear to me that the appeal of so-called "stable-coins" pegged to fiat does not really lie in their having a supposedly "stable" value per se, as in real actual value, but, rather, in the fact (or presumed fact anyway?) that their market-makers manage their "spot markets" very tightly. So it seems to me that what ought really end up as "ideal" will be non-inflationary assets whose spot-markets are managed that tightly. In particular, why the heck are bitcoin's spot-markets not managed that tightly? I know from personal trading / market-making that volatility is profit to such operations, so maybe the main advantage of the so-called "stable-coins" over bitcoin in that department might lie in the fact that the "stable-coins" need not rely upon trading / market-making for profit by feeding upon volatility, rather they are able to "back" their coins/tokens/IOUs with interest-bearing bonds and/or dividend-paying stocks? So maybe long term bitcoin will always remain a plaything the various nations or civilisations or whatever can push up and down up and down up and down to profit from volatility, lacking a nation or civilisation or whatever of its own that will choose rather to suppress volatility and be big enough in the big picture to do so even against the pushes and pulls of other institutions that seek to profit from volatility? So maybe long term each civilisation will eventually deploy not only an inflationary fiat but also a savings-asset, but want a savings-asset of its own rather than using the shared universal resource known as bitcoin for that purpose simply because most of them are not powerful enough in the big picture to have enough anti-volatility strength on the scale of bitcoin, needing instead something smaller of their own they hope they will be able to smooth out the volatility of? One thing we have for many many years now been studying and trying in the Galactic Milieu is to at least somewhat disengage value from the manipulations of spot markets by providing a "treasuries" system that ultimately presumably could act somewhat the way capacitors work in electronics, tools for smoothing out fluctuations. Such an approach has been seeming not at all appealing to the mainstream though because of course it involves a whole lot of value being "tied up" (the Knotwork slogan: tying it all together); capacitors need to be filled up afterall as part of the "warming up" of a circuit, so to some folk having oodles of electrons sitting around in capacitors seems inefficient or wasteful somehow... -MarkM-

Let's take Venezuela as an example and other countries that are dealing with too much inflation. AFAIK, the money that's being used there now is USD and it's possible that they'll also use stable coins because their fiat has become a toilet paper. So, it saves them paper and then saves the value of their money upon doing transactions. It's ideal for countries like them that are into that worse situation.

Seems we are heading that path where stablecoin might be used to replace cash. Too many stablecoins out there and honestly it also help strengthen USD since everyone around the world have easy access toward stablecoin. Control and regulation are already in place so there's nothing to worry about that. I bet in the future you can accept stablecoin anywhere the way you can use credit cards anywhere.

No country will stable coins replace cash but people might use it as an alternative to cash. I read news about what is presently happening in Venezuela I think, that many people are now using stable coins for trading, but people in such country will still continue to use their local currency.

USDT is a stable coin. If you keep money here, your inflation will not be able to hurt you, but since it is not a decentralized coin, keeping a large amount of money here is also very risky. The reason is that there is a specific organization to control it and legal action was taken against it, but they were able to win the case by providing valid documents. However, no centralized coin can be completely trusted. So there is a risk in all cases. In the case of Fiat currency, there is the fear of inflation, and holding excess money in crypto stable coins is also very risky.

Yes, unfortunately many people use stablecoins to store value which is a terrible idea for many reasons. First and most obvious is that stablecoins are centralized and extremely risky because the company can freeze your funds or even get shut down itself and your money would become worthless in a blinking of an eye. But also doing this against inflation is a bad move because money has to be invested in real business to contribute to the economy. I like to call it "healthy investment". But other than that if investment is the goal (to store value) hard assets like gold or in our case bitcoin are better choices compared to stablecoins.

Each country has its own regulations. If it were up to them to use a currency, regardless of inflation, those countries wouldn't use any other currency. In our own country (Indonesia), crypto is considered an asset, be it Bitcoin (BTC) or altcoins, it can't be used as payment method. So, specifically for our country, $USDT, $USDC & other stablecoins will only be used for trading purposes on CEX, it will never be a daily use.

That's true. But the benefits can only be obtained if you're able to access such stablecoin. Most of them are available through KYC-compliant exchanges (otherwise known as centralized exchanges), making it difficult for people living in third-world countries to access them. Especially when such exchanges introduce restrictions/limitations based on region. Acquiring a stablecoin through a decentralized exchange or P2P trading platform might work, but liquidity is often low. Even if you get access to, let's say, a USD-backed stablecoin, you'd still be subject to censorship. I've read that issuers have the ability to "freeze" addresses belonging to stablecoin holders if they deem the transaction "suspicious". If you're lucky, holding a stablecoin backed by a strong currency will allow you to beat inflation for good. Especially if we're talking about countries such as Venezuela, and Argentina. I think stablecoins will become everyday money in places where there's high inflation. They might eventually replace national currencies. But only if governments allow it.

Stablecoins have a variety of use cases and one of such cases is trading. So it doesn't mean that stablecoins were primary built for traders. Well, it was but that wasn't the only fundamental reason behind it. Given the fact that banks would likely not release their own CBDCs anymore, it's becoming obvious that banks will likely adopt crypto-native stablecoins. If that becomes the standard in top European countries, underdeveloped countries will likely agree to it too.

Stable coins are only stable if there are nothing bad happen like depegs. Even in good performance like this, it does not make stable coins as good stores of value. Gold and Bitcoin are good assets as store of value because storing your money in gold and bitcoin, over time, your portfolio has good chance of value increase. With stable coin, there are three big risks: - Depeg - Inflation of fiat currency will affect value and purchasing power of stable coin. - Stable coin can be frozen even in your non custodial wallet. PSA: Most Stablecoins Can Be Frozen, Even in Your Own Wallets

That's true since we are still early on the stablecoin trend, there are very limited amount of countries who deployed their own stablecoin let alone using it to replace cash but since there's plan about CBDC brewing in many countries and as it happens, USA figures out that stablecoin can help mantain strength of their USD there will be many countries that follow and at that point stablecoin might be able to replace cash. It's still far in the future though, transition between paper money to stablecoin will take quite the time. If it's for trading, no doubt. Everyone use USD and other currency stablecoin doesn't even come close.

To be fair, it is a bit about regulations and also adoption. If you are in Zimbabwe and the government allows you and everyone starts to accept it and pay with it then yeah USDT could be used way more than their own currency. But you have two huge tasks that needs to be done for that, first of all you need to let government accept it as a valid way of payment, and secondly you need to make majority of the public start using it. That doesn't exist in any nation of the world right now, and so far it doesn't look like there will be one. This is why I honestly believe it is not a good idea and should not exist at the moment. Maybe in the future it could be a good one, in some small nation, but nothing so far that shows that.

The reason why they go about using stablecoins as hedge over inflation is because stablecoins has greater value in terms of holding their local currency. Especially in countries where the value of the US dollars is far greater. Holding stablecoins can be very useful to them but economically it is wrong to save money when the money can work for us to bring more money. However, for people who have more discretionary income to save and invest, I dont see savings to be wrong. Not all money should be put into investment, it is preferable to have both savings and investment. If we dont have enough income to do both, that is when the idea of choosing investment/business is better than saving.

I am from Venezuela, so I can offer much information about the use of stable coins here in my local market. Mainly people use stablecoins here to save their money from devaluating, they usually go to P2P markets (mostly Binance) and buy USDT to keep in their Binance wallets in the long term, when people need to buy anything they sell the USDT for local FIAT on the same P2P market. There is the option to also buy directly with Binance PAY by paying with USDT. I have myself see how people buy cellphones and electronic products with USDT, as vendors and merchants have learnt about the ease to use and borderless advantages of stablecoins, since our government cannot offer enough dollars to satisfy the demand of the people of the country.

Becomes everyday money? If any country can allow other countries' fiat to come and overthrow their own local currency, then it might work that way. A stablecoin like USDT is the same as using physical USD cash; it's better to just save and hold physical USD when it comes to larger quantities than to hold USDT, even if the purpose is to save yourself from inflation, as Tether and the 3-letter agency can decide any day to freeze users' funds while they're in the person's personal wallet.

That's very interesting use case, the P2P market in there must be huge but I wonder if the people also use other stablecoin such as PAXG and XAUT which is gold because it's an even better hedge against inflation and I wonder if some of them also uses crypto debit card knowing they can pay anything in an even wider range of merchant by automatically deducting their USDT although I still think that direct payment is king. I guess this is why US pushing for stablecoin so much these past few months, they know it has the potential to be adopted world wide.

I'm not sure if that is the best move though, yeah it could help to hedge your wealth against inflation, but I guess it's better for crypto that has like Bitcoin or any good altcoin for that matter? I understand that there are risk involved, that why you have to carefully chose which crypto to hedge your money with. But I would agree that crypto is really a game changer in the financial world as we have a new options that traditional base systems can't offer. And that is the same reason why in the beginning, banks and other government regulatory bodies are anti-crypto.

Well, governments won't like the idea of people using stablecoins on top of their own currency. They will probably come up with restrictions/limitations out of pure jealously. They will only succeed with centralized stablecoins, though. Decentralized stablecoins will remain impervious from government censorship. The problem is that most decentralized alternatives are either algorithmic, or collaterized with other cryptocurrencies. At least, stablecoins serve their purpose well in bringing cross-border transfers pegged to the value of traditional Fiat currencies. You can only protect yourself against inflation, if the currency you've chosen is much stronger than the one used in your country. I know many people from developing countries will rely on USD-backed stablecoins for day-to-day payments. Developed countries, not so much. We'll see how governments react towards the increasing use of stablecoins as an alternative to traditional Fiat. Anything's better than CBDCs, right?