After Silicon Valley Bank failed last week, stablecoin USD Coin lost value and fell to as low as $0.88 over the weekend, before regaining most of its value, per Yahoo Finance.
Stablecoins are a type of cryptocurrency designed to maintain a stable value relative to an asset, such as the U.S. dollar, the euro, or gold. Currently, the most popular stablecoins in the U.S. are Tether and USD Coin, which are pegged to the U.S. dollar—meaning they’re backed by U.S. dollars similar to how gold is used to back paper currency.
Unlike traditional cryptocurrencies like Bitcoin, which can fluctuate wildly in value, stablecoins are pegged to a specific asset, which in theory should provide greater stability and predictability in value. Stability in value makes the currency safer to hold and safer to accept. Merchants can be hesitant to accept payment in a currency that could lose a significant amount of value overnight.
The wider cryptocurrency market is still relatively new and unpredictable, with prices fluctuating based on market sentiment and speculation. This volatility can sometimes spill over into stablecoins, even though they are supposed to be insulated from these swings. The fear that even stablecoins fluctuate too much to be relied upon has received some fuel recently.
Despite these concerns, many experts believe that stablecoins have a bright future. They could provide a bridge between traditional finance and the world of cryptocurrencies, offering a stable and reliable way to transact in digital assets.