For as much grief volatility brings to the crypto space, it is this exact volatility that makes for massive gains in the long run. Stablecoins offer investors a safe haven free of that dreadful risk associated with crypto. However, no one coin is better than the other, and each has its own benefits depending on the use case. Volatile currencies like Bitcoin and Ethereum provide a high-risk, high-reward asset model and might work better in such an environment. In comparison, stablecoins like USDC or USDT offer transactional reliability as these are tied to fiat currencies. Below are some use cases where each would function best.
The High-Stakes World of Online Gaming
Of course, it makes sense that when you’re in a high-stakes environment, you want to ensure your assets are as secure as possible. As such, it only makes sense that Stablecoins would be your go-to for gaming, but that is not necessarily the case. In fact, both volatile and stable assets would prove practical in this use case. Looking at cryptocurrencies like Bitcoin and Ethereum, they are much older than Stablecoin and much more widely integrated. Generally, most online casinos where you can use cryptocurrency accept more mainstream tokens like BTC.
These platforms are built on a decentralized peer-to-peer network where blockchain tech allows for anonymous transactions, provably fair gaming, and extremely low fees. By gaming with BTC (for instance), instant deposits, withdrawals, and other transactions will be that much easier. However, the volatility factor is like a dark cloud hanging over players’ heads, just waiting to ruin the fun. Although it might be slightly more difficult to find an online platform that accepts Stablecoins, its main benefit is the peace of mind it brings.
If you place a $20 wager right now using USDT, the value will remain consistent for the foreseeable future. You know exactly the fiat value instantly. With BTC or ETH, a $20 wager might turn into a $15 wager instead, depending on external factors outside of your control. Ultimately, it is just up to player preferences. If you understand the inherent nature of cryptocurrency (and, in turn, its market volatility), it is the equivalent of placing a bet. Since risk is involved anyway, the added volatility crypto brings makes little difference.
Alternatively, a combination of both these options works well for many players. Simply put, you could take any massive winnings you get from crypto platforms (especially those where you used a volatile token to place the initial wager) and convert them to a Stablecoin. With this method, it is easier to maintain the true value of your money. Keeping it in a wallet as a fiat-pegged currency until you place your next bet (which is when you’ll convert back to BTC or ETH) is a good way to combat volatility.
In-Game Economies and Play-to-Earn
When it comes to gaming, different tokens each have different functions within the broader economy. Compared to gaming, in this sector, volatile currencies and Stablecoins each have much more nuanced roles, especially with P2E (Play-to-Earn) models. You may wonder what good a volatile asset would do in the gaming ecosystem, but contrary to popular belief, primary game tokens need volatility.
Think of these primary tokens as the currency being used to buy major NFTs (Non-Fungible Tokens), governance, and to stake. Market volatility is the driving force behind these, providing players with an incentive to keep playing. More importantly, it pushes them to invest early (this would be where the “earn” part in P2E comes into play). Stablecoins tie in with the in-game utility. Most game stores allow players to purchase smaller items like gems, avatars, and other collectables. These are generally bought in high volumes, despite them being low-value, which is why USDT/USDC comes to the rescue.
It keeps these items at a stable price, preventing item values from fluctuating alongside the volatile asset market. With Stablecoins, the gun skin or banner you’re buying will remain fixed at $1, and will only change if the publisher decides to up the price. However, using BTC or any other cryptocurrency means that skin or banner could shoot up to $10 overnight, or plummet down to $0.10 without warning. This, of course, would be disastrous for game studios. As such, both coins are necessary here, making for a dual token system of sorts.
While there is one governance coin (BTC/ETH), there is also a single in-game Stablecoin. Unlike with gaming, where it’s an either-or situation, the presence of both options is vital in balancing speculation with utility. The best practice recommendation in this use case would be to use volatile assets for investment (so governance or for making large purchases). Stablecoins would then be reserved for the transactional layer, wherein you make those everyday, micro-transactions.
Trading and Decentralized Finance
Again, with trading, Stablecoins and volatile tokens both play necessary roles depending on your objective. Starting with volatile coins, these are the target of your trade. Although it may seem counterproductive to invest in a coin that could potentially lose you money, that is the beauty of volatility. When you buy an asset to HODL (invest long-term), it is vital that you are exposed to the risk and growth of the crypto market.
Without volatility, your crypto investment can’t gain momentum and keep growing. Let’s say you buy $1,000 in BTC to HODL; a market surge could see you double or triple this amount overnight. HODLing decisions are further informed by technical indicators and market structure anomalies like the CME gap. With Stablecoins, there is a much more active role. For DeFi utility, USDT is generally used as a form of liquidity or digital cash, and is perfect for borrowing and lending.
If collateral is needed, it often requires a predictable value that volatile assets won’t be able to provide. When it comes to trading, Stablecoins offer the perfect “exit ramp” for volatile coins in that they lock in any profit investors might make on BTC or a similar token. Basically, you invest in the volatile market, you make big gains, and then you convert said gains into USDC/USDT to maintain them. This method is not only great for risk management, but it also helps with mitigating any potential delays or costs (i.e., maker and taker fees).
In essence, Stablecoins are at the core of crypto trading, functioning as fiat reserves within a decentralized platform. Think of it as the center or gathering point for all trading pairs, walking a fine line between risk and gains. As such, the recommended best practice for trading would be to use volatile coins for long-term growth and investment (speculating). Stablecoins should be reserved for risk management, liquidity provision, and locking in gains; operational currency, if you will.
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