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The Unique Characteristic of Stablecoins
Stablecoins possess a property that traditional cash doesn’t: they can serve as a means of speculation.
Traditional Cash and Commodities
Traditional cash acts as both a medium of exchange and a store of value. While gold primarily serves as a store of value, cash performs a dual role. Although various commodities such as food, oil, or art can also serve as both a medium of exchange and a store of value, cash is superior due to its relatively stable value, which erodes gradually, depending on the inflationary environment.
Stablecoins as Means of Speculation
In crypto, cash isn’t limited to being a store of value or a medium of exchange; it can also be used as a means of speculation, a characteristic not typically associated with traditional cash.
In the crypto world, equivalents to cash are represented as stablecoins, typically pegged in various ways to the USD. These stablecoins are in competition with each other for market dominance.
Speculative Asset and User Behavior
When viewed as a speculative asset, on-chain cash is neither a store of value nor a medium of exchange but rather serves as a means of speculation. Users often hold stablecoins primarily for the rewards they offer; once these rewards diminish or cease, users typically opt for a different stablecoin.
Adoption Trajectory and Ultimate Goal of Stablecoins
The adoption trajectory for on-chain stablecoins typically progresses from a means of speculation to a medium of exchange, and finally, to a store of value. The ultimate goal for any stablecoin is to achieve recognition as the preeminent store of value, as this represents the ultimate demand sink. While acting as a medium of exchange does create a demand sink, it is inherently more volatile. Stablecoins used primarily as a means of speculation risk becoming obsolete as soon as the rewards cease.
Current Stablecoin Market
Currently, in the crypto space, many stablecoins are primarily used for speculation, albeit exhibiting some characteristics of a medium of exchange. Progressing from these initial stages to attain recognition as a reliable store of value represents the top for most, if not all stablecoins.
What do you think about this view? Which stablecoin in the market has which state and which one have a chance to be store of value?