The Wall Street Journal (WSJ) recently highlighted USD-backed stablecoins as a significant potential solution to the looming United States debt crisis.

Read more on: https://thecryptobasic.com/2024/06/21/wsj-usd-stablecoins-could-help-prevent-us-debt-crisis/
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Stablecoin market value reached a new record of $168 billion amid 11 months of consecutive growth. Defi Llama data shows the total stablecoin market value is now at its highest point ever, surpassing the previous peak in March 2022. The data excludes algorithmic stablecoins maintained through algorithmic mechanisms rather than being pegged to external assets like fiat currency or gold.

Stablecoin Value Breaks Record

The market reached a record level of $167 billion in March 2022, but soon dropped and fell to $135 billion before the end of that year. Crypto analyst Patrick Scott, also known as Dynamo DeFi, mentioned in a post on X on August 26 that he believes this is a sign of new money entering crypto.

Although he did not speculate on what caused this increase, he explained that the rise has continued for at least eight months when asked by another user if institutional investment was behind the rally. Tether leads the stablecoin projects. Shortly after the new year began, USDT’s market value reached $91.69 billion.

Details on the Subject

Throughout 2024, it recorded steady monthly gains, surpassing a market value of $117 billion for the first time in August. Circle USD also had a year full of gains, reaching a market value of over $34 billion at its peak in 2024, but still far from its all-time high of $55.8 million in June 2022.

CCData’s July report indicates that stablecoin trading volumes fell by 8.35% last month to $795 billion due to lower trading activity on centralized exchanges. The report points to MiCA regulations in Europe, which have raised concerns about the future of USDT, as factors contributing to the decline in stablecoin trading activity on centralized exchanges throughout July. This trend continued in August, and according to Coin Market Cap, the market’s trading volume is now just over $46 billion.

Stablecoins are a type of cryptocurrency designed to have a stable value relative to a particular asset, usually a fiat currency like the US dollar. Here’s a breakdown of how they work and why they matter:
### How Stablecoins Work
1. Backing Assets:
- Fiat-Collateralized Stablecoins: These are backed 1:1 by fiat currencies held in reserve. For example, for every US dollar worth of stablecoin issued, there is an equivalent US dollar held in reserve.
- Crypto-Collateralized Stablecoins: These are backed by other cryptocurrencies. To account for price volatility, these stablecoins are usually over-collateralized; for instance, $150 worth of cryptocurrency might be required to issue $100 worth of stablecoin.
- Algorithmic Stablecoins: These do not rely on collateral but use algorithms and smart contracts to control the supply of the stablecoin to keep its price stable.
2. Redemption and Issuance:
- Users can typically redeem stablecoins for the underlying asset (like fiat currency) at a fixed rate. This process helps maintain the stablecoin's value.
- New stablecoins can be issued as needed, based on the value of the assets backing them.
3. Transparency and Audits:
- To ensure trust, many stablecoin issuers provide regular audits of their reserves and publish reports about their collateral holdings.
### Why Stablecoins Matter
1. Price Stability:
- They provide a stable value compared to other cryptocurrencies like Bitcoin or Ethereum, which can be highly volatile. This stability makes them useful for everyday transactions and as a store of value.
2. Integration with Traditional Finance:
- Stablecoins bridge the gap between traditional financial systems and the crypto world. They can be used for transactions, savings, and investments in a more stable manner compared to other digital assets.
3. Decentralized Finance (DeFi):
- In the DeFi space, stablecoins are integral for lending, borrowing, and trading. They offer a stable base for many DeFi protocols and platforms, facilitating financial activities that are otherwise hard to manage with volatile cryptocurrencies.
4. Global Transactions:
- Stablecoins can facilitate international transactions by reducing the need for currency conversion and offering a stable medium of exchange that operates on blockchain networks.
5. Financial Inclusion:
- They can provide financial services to individuals in regions with unstable local currencies or limited access to traditional banking services.
In summary, stablecoins are a critical innovation in the cryptocurrency space, offering stability and bridging traditional finance with digital assets, while supporting a wide range of financial activities.
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