What do stablecoins do? Well, nothing, that’s the point. Suppose you made a great trade on Bitcoin, bought Bitcoin for $40,000 and sold at $50,000. Nice! But instead of “taking cash”, what if you could realize your nifty trade gains, without taking your money out of crypto?
Well, you could just “cash out” a profitable trade, OR you could “buy” a stablecoin like Tether USD Coin or RSV. These coins work like the dollar except its on the blockchain, basically. The value never changes more than a couple percentage points (temporarily), and you can use it to lock in gains or keep your money (‘dry powder’ as we say in stocks) available for a rainy day or to catch a sweet market dip.
Another common stablecoin scenario is “weathering the storm”. Basically, if you own some Ethereum at a current value of 10k, but your crystal ball tells you the price is going to plummet, you can convert your Ether to a stablecoin and retain all 10k of that value even if the price drops. Once you feel comfortable again, you can trade the stablecoin back for your Ether – usually netting you more Ether. Keep in mind this scenario can backfire if your crystal ball is wrong and Ether goes up while you are “stablecoined up”.*
A non-speculative scenario comes into play in countries affected by hyperinflation.
In countries like Venezuela, it’s possible you can get paid on Friday and wake up Monday with your paycheck now worth significantly less than payday in purchasing power. Immediately converting your paycheck to a stablecoin until you are ready to spend it, can preserve the value of your money in times of inflation. That is where stablecoins like RSV come into play.
*Note – in the U.S. converting one coin into a stablecoin is a taxable event.