Q&A: Why stablecoins are gaining popularity

STABLECOINS - a form of cryptocurrency backed by traditional assets - are gaining traction, with the US Senate set to vote Tuesday on a bill to regulate such digital tokens.

- AFP

But as stablecoins move closer to the financial mainstream, experts warn that weak regulation could leave investors and the financial system vulnerable.

What are stablecoins?

Stablecoins play a key role in crypto markets, enabling users to trade digital assets without relying on traditional banks, instead using a decentralised register known as blockchain.

Unlike volatile cryptocurrencies like bitcoin, stablecoins track the value of traditional assets such as the US dollar or gold enabling greater stability.

Tether and USDC, for example, are pegged to the dollar, backed by reserves held by their issuing companies.

They are useful internationally because they enable "fast, low-cost cross-border payments", said Dessislava Aubert, an analyst at crypto insights firm Kaiko.

This is “especially valuable in emerging markets where access to hard currency and traditional banking services is often limited", Aubert added.

Examples include Argentina, Nigeria and Turkey.