Why would the average consumer hold or use stablecoins?
Here are five reasons:
✴️ They are arguably safer. Stablecoins operate on a full reserve model. Unlike fractional reserve banking, where financial institutions lend out deposits, U.S. law requires stablecoins to be fully backed by cash, short duration Treasuries, and repo agreements. These reserves are bankruptcy remote, which eliminates the need for FDIC or similar insurance. This is not a flaw, it is a feature.
✴️ They can offer rewards. The banking lobby ensured the GENIUS Act prohibited stablecoin issuers from paying interest, but the law appears to allow rewards. Merchants, who benefit from lower transaction costs, are also likely to incentivize payments made with stablecoins. In addition, holders can place stablecoins into DeFi smart contracts to earn yield. The combined rewards, in many cases, may exceed the return of a high yield savings account.
✴️ They are convenient and portable. Stablecoins live on the blockchain, accessed through a digital wallet, and function like digital bearer instruments. Think of it as cash in your pocket, except it is accessible anywhere in the world with an internet connection.
✴️ They enable borrowing. Since stablecoins are digital assets backed by real world reserves, they can be used as collateral in order to borrow rather than spend them. This is similar to how wealthy individuals borrow against their stock portfolios.
✴️ They provide a hedge against weak currencies. Outside the United States, consumers often use stablecoins to protect themselves from inflation or unstable local currencies. In many places, stablecoins are already accepted at merchants just like cash. Soon, U.S. merchants will follow.
These are only a few of the reasons consumers may want to hold and use stablecoins. "Not financial advice."