April 28, 2020 / by Crypto.IQ
Stablecoins are becoming increasingly popular. The Tether (USDT) market cap has surged to $6.4 billion and overall stablecoins collectively have a market cap of over $9 billion. Simultaneously, stablecoins are being embraced across Ethereum-based Decentralized Finance (DeFi) platforms and Ethereum-based dApps. The proliferation of stablecoins is decreasing the use of Ethereum (ETH) as a currency and therefore decreasing Ethereum’s (ETH) value.
Ryan Watkins from Messari, a well known and reputable crypto analysis firm, points out that stablecoins are basically becoming the currency of choice on the Ethereum (ETH) network. If this trend is not reversed via dApps and DeFi platforms that use Ethereum (ETH) as a currency and for collateral, then Ethereum (ETH) will become no more than a digital oil of sorts.
In other words, as stablecoins continue to increase in dominance, most people are just using Ethereum (ETH) to pay for transaction fees on the network, rather than as a currency.
Long term, this means that less people will be investing into Ethereum (ETH), since more and more people on the Ethereum (ETH) network are keeping their funds in stablecoins.
That being said, this trend is perhaps expected, and perhaps unstoppable as well. The volatility of Ethereum (ETH) makes it a non-ideal currency, whereas stablecoins have pretty much no volatility since they are pegged to the USD and other major fiat currencies. Stablecoins taking over as the currency in the Ethereum (ETH) ecosystem seems to be the natural progression of things, and it appears Ethereum (ETH) itself will mostly just be a ‘digital oil’, i.e. a way to pay transaction fees, long term.