Let’s role-play.
It is 2022 and you can’t pay for your Apple Music subscription because there’s a $20 limit on your card.
Your goal is to build a global business, but you can’t receive international payments without losing almost 4% to intermediary platforms.
It is frustrating. We know.
In a space where popular cryptocurrencies are known to crash suddenly, stablecoins are a welcome payment alternative. Research supports this with 85% of merchants who consider enabling crypto stablecoin payments, as high priority.
In this article, we’ll explain what stablecoins are, how they work and how we’ve helped over 1000 businesses like yours receive stablecoin payments.
Ready?
Let’s dive in!
What is a stablecoin?
A stablecoin is a digital currency whose value is tied to another asset with a stable price. Examples of these assets are fiat currencies – dollars, pounds – other cryptocurrencies and precious metals.
According to Justice Eziefule, a software engineer at Lazerpay,
“Stablecoins offer complete stability as opposed to the volatility of other cryptocurrency tokens.”
To learn more about cryptocurrencies, check out this beginner’s guide to cryptocurrency. Next, we’ll discuss why you need stablecoins to build a successful business.
Why do you need stablecoins?
Africa might be a continent, but its economy is as disconnected from itself as the global economy.
This disconnect puts businesses and individuals like you at a disadvantage.
According to the United Nations Conference on Trade and Development (UNCTA), Intra-African trade in 2021 accounts for less than 14.4% of the total African export.
The AfCTA is expected to cut this trade deficit by half, meaning more trades across African countries.
However, this can’t happen with the difference in national currency across African countries.
Hence, there’s a need for a universal payment option across the different countries. This is why access to a crypto payment solution that accepts stablecoins is a necessity.
Accepting stablecoins connects you with the global economy and empowers you and other merchants, creators, individuals, and businesses to send and receive payment without hassle.
Now that you understand why stablecoins are important, how exactly do they work? We’ll show you in this next chapter.
How do stablecoins work?
Stablecoins are designed to follow a reserve asset’s worth. This reserve asset backs the stablecoin and is also known as the collateral. Stablecoins can be categorised into four types, which are:
- Fiat-backed Stablecoins
- Crypto-backed Stablecoins
- Algorithmic Stablecoins
- Commodity-backed Stablecoins
1. Fiat-backed stablecoins
These are stablecoins pegged to fiat currencies like the U.S dollar. Fiat-backed stablecoins keep reserves in fiat currencies which can be exchanged for the stablecoins.
For example, a stablecoin called USDT, pegged to the U.S dollar (an example of fiat currencies) will have dollar reserves to back every Tether created. It will also remain at the same value as the dollar.
If the stablecoin’s price moves higher or lower than the fiat, an arbitrageur – a qualified professional who monitors these irregularities in value – quickly brings the price back to its normal rate.
Let’s assume the USDT is selling at a value above the U.S dollar, These investors will increase the supply of the stablecoins to bring it back to the fixed price.
Examples are BUSD, Tether (USDT), and USDC stablecoins. Tether is the largest stable coin in the world and has the third-highest market cap in cryptocurrency at 72 billion dollars behind only Bitcoin and Ethereum.
2. Crypto-backed stablecoins
Unlike other cryptocurrencies, these are similar to fiat-backed stablecoins but rather than having a fiat reserve, they have cryptocurrencies as their reserve.
A crypto-backed stablecoin deals with the volatility of the crypto market by over-collateralising the reserve to prepare for any change in price.
For example, if you want to mint 1 WBTC( Wrapped BTC) valued at $100, you have to pay $150 dollars at 1.5x collateral.
Crypto backed stablecoins are backed by crypto collateral like Ethereum and run by smart contracts on the blockchain. However, some crypto-backed stablecoins are run by decentralized Autonomous Organizations (DAOs)
Examples are DAI, Wrapped Bitcoin, and Wrapped ETH.
3. Algorithmic stablecoins
Unlike fiat-backed and crypto-backed stablecoins, an algorithmic stablecoin is not backed by any crypto or physical assets. Instead it relies on algorithms to control the supply of stablecoins without the need for a reserve currency.
Algorithmic stablecoins are rare and hard to operate. UST is the most famous algorithmic stablecoin in the world and it was tied to Luna.
The collapse of the UST led to the ultra dip in the price of Luna, leading to a loss that ran to hundreds of millions of dollars.
4. Commodity-backed stablecoins
These are blockchain-based representations of commodities like gold and silver. They are backed by reserves held by a central authority.
Physical assets such as precious metals, oil and real estate are collaterals for these stablecoins. They usually come in handy for those who want to swap tokens for cash or get the underlying tokenized asset.
Tether Gold (XAUT) and Paxos Gold (PAXG) , are two examples of the most liquid gold-backed stablecoins.
What are the most popular stablecoins?
These tokens are the most popular and widely accepted stablecoins. They have a track record of maintaining a stable rate with the U.S dollar, hence, people trust them more.
They are:
- Tether (USDT)
- Dai (DAI)
- Binance USD (BUSD)
- USD Coin (USDC)
- TrueUSD (TUSD)
With Lazerpay, you can send and receive payment in multiple stablecoins, including USDT, USDC, BUSD, and DAI, providing your customers with choices.
What’s the difference between stablecoins and other cryptocurrencies?
| Stablecoins | Other Cryptocurrencies |
| Extremely low volatility | Suffer from high volatility |
| Backed by fiat currency and precious metals | Not backed by specific assets |
| Most are controlled by a central authority | Not controlled by financial authority |
| Examples are USDC, USDT, DAI | Examples are Bitcoin and Ethereum |
Benefits of accepting stablecoins
Firstly, the volatility of cryptocurrencies is the unique selling point for stablecoins. The stability of stablecoins protects business owners from losing value unnecessarily.
Secondly, this stability makes stablecoins attractive to traders. It eliminates any element of surprise. Hence, planning is straightforward with the business capital not subjected to volatility.
Also, most stablecoins are cross-chain tokens. This means they are available on almost all blockchain platforms.
This makes them available and easily accessible on multiple platforms to buy, sell, or swap. Also, many stablecoins are pegged to the US dollar (the world’s most robust and widely accepted currency).
Finally, tie between stablecoins and USD is a confidence booster for most traders who see these stablecoins as the digital version of the dollar.
In this next section, we’ll be exploring the different ways you can use stablecoins as a business owner.
Uses of stablecoins
1. Means of payment
People trust stablecoins because they are not volatile unlike other cryptocurrencies. They can be easily traded for fiat currencies on trading platforms. As a result, they make cross border payments easy and fast.
Payment platforms like Lazerpay have made it super easy to send and receive payment in stablecoins. It is super fast, easy to use, and secure.
You can send and receive payment in multiple stablecoins, including USDT, USDC, BUSD, and DAI, providing your customers with choices.
Miracle Nwokwu, the Chief Technical Analyst at Bitville Academy has this to say:
“Prior to our Lazerpay integration, we had problems collecting crypto payments due to high gas fees associated with our previous partners. Lazerpay provided swift & cheap solutions and we’re happy to work with them over and over.”
2. Receive donations
Beyond making and receiving payments, you can also receive donations in many stablecoins.
With Lazerpay, you can raise funds for your favourite charitable cause without worrying about inter-border transactions.
Donors can donate to their favourite charities anytime and anywhere in the world, with a 1% flat rate, without an intermediary like a bank or payment processor.
This was the case with ChessinSlums, a non-governmental organisation changing the lives of displaced children. However, donors outside their country had difficulties supporting their cause.
Partnering with Lazerpay helped them solve this. They started receiving donations in crypto stablecoins like UDST, USDC, BUSD and DAI from anywhere in the world.
3. Store of wealth
Stablecoins can be used as a store of wealth and an opportunity to earn interest. Especially in countries where their currencies are susceptible to inflation and devaluation.
Instead of having your money lose value while sitting in your bank accounts, save in stablecoins to be converted to fiat whenever you need them.
With Lazerpay, you have access to custodial wallets to receive and store up to four different stablecoins.
4. Global payouts
What’s better than money in your wallet? Money in the bank. With Lazerpay, you get to withdraw your stablecoins directly into your bank account.
With a 1% flat transaction fee, you get to settle transactions without visiting a crypto exchange platform.
In Conclusion,
Stablecoins allow borderless payment. They are also beneficial for businesses in developing economies.
This way, you can receive payment, save and invest without worrying about losing value.
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