Stablecoins, Transaction Fees & How To Fund Them
What are stablecoins?
Stablecoins, as the name suggests, are cryptocurrencies designed to minimize price volatility. Unlike Bitcoin or Ethereum, whose values can fluctuate dramatically over short periods, stablecoins are pegged to stable assets such as fiat currencies like the US Dollar, or commodities like gold in the case of Tether’s XAUt. This pegging ensures that their value remains relatively stable.
The top five stablecoins are as follows:
- Tether (USDT): Issued by Tether with a $83B market capitalization
- USD Coin (USDC): Issued by Circle with a $26B market capitalization
- Dai (DAI): Issued by Maker DAO with a $5.3B market capitalization
- TrueUSD (TUSD): Issued by TrueUSD with a $3.1B market capitalization
- Binance USD (BUSD): Issued by Binance with a $2.5B market capitalization
Stablecoin use-cases:
- Remittances & Cross-border Payments: One of the primary uses of stablecoins is for sending money across borders. Traditional banking systems often come with high fees and longer wait times. Stablecoins offer a faster, cheaper alternative.
- Price Stability in Trading: Traders use stablecoins as a safe haven during high crypto market volatility. Instead of converting crypto to fiat—which can be a slow process—they can quickly move to stablecoins, preserving the value of their assets.
- Decentralized Finance (DeFi): Many DeFi platforms and protocols employ stablecoins as the primary medium of exchange, lending, and earning interest. They provide predictability in an ecosystem known for its high volatility.
- E-commerce & Online Payments: Some online platforms accept stablecoins as payment, providing merchants with the security of a stable currency without the need for traditional banking systems.
- Programmable Payments: Stablecoins can be used in smart contracts where programmable, automated payments are needed without the unpredictability of cryptocurrency volatility.
Stablecoin transaction fees
If you’re new to stablecoins, you may not know that you need to pay for transaction fees separately. Many new users get stuck at this point but it’s actually quite simple to navigate once you know how.
Different stablecoins run on various blockchains, and each blockchain has its own native currency used to process and validate transactions. Below, we'll explore some specifics that every stablecoin user should know.
- USDC on Ethereum: If you're purchasing USDC, which primarily operates on the Ethereum blockchain, you'll need Ether (ETH) to cover transaction fees. This is because Ethereum's native cryptocurrency, ETH, is used to fuel operations on its network.
- USDT TRC20 on TRON: The TRC20 version of USDT operates on the TRON blockchain. Consequently, if you're sending or transacting with this variant of USDT, you'll need TRON's native currency, TRX, to cover associated fees.
- USDT ERC20 on Ethereum: While USDT is available in multiple versions, its ERC20 variant also runs on Ethereum. Thus, just like with USDC, you'd need ETH to handle transaction fees for USDT ERC20.
- USDT BEP20 on Binance Smart Chain (BSC): The BEP20 is a token standard on the Binance Smart Chain. If you're transacting with USDT BEP20, you'll need BNB, Binance's native currency, to cover fees.
- Stablecoins on Solana: If you're dealing with stablecoins like USDC or USDT on the Solana blockchain (SPL tokens), you'd need Solana's native currency, SOL, to pay for transaction fees.
Understanding these nuances is pivotal for anyone diving into the world of stablecoins. It's not just about holding the stablecoin itself but ensuring you have the appropriate accompanying currency for a seamless transaction.
In essence, before purchasing or transacting with a specific stablecoin, always consider the blockchain it operates on and keep some of its native cryptocurrency on hand. This way, you're always prepared for any transactional needs and can avoid unexpected hurdles.
In conclusion
Stablecoins merge the best of both worlds: the stability of traditional assets and the flexibility and efficiency of cryptocurrencies. As the digital economy grows, the significance and applications of stablecoins are expected to expand even further — just don’t forget to have some other currencies on hand to pay for the transaction fees!
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