2.6 Benefits and Risks of Stablecoins

Stablecoins offer several significant advantages over both traditional currencies and volatile cryptocurrencies. Price stability makes them suitable for everyday transactions without the risk of value fluctuations. Fast settlement times, often under a minute, far exceed the speed of traditional banking transfers.

Low transaction costs make stablecoins economical for transfers of any size. Sending 100 INR worth of USDT costs the same in network fees as sending 100,000 INR worth. Stablecoins operate 24/7 without banking hours or holiday restrictions. They also provide global accessibility without the need for currency conversion.

Despite their advantages, stablecoins carry certain risks that users should understand. Reserve risk exists if the issuer's reserves are insufficient or illiquid to cover all outstanding tokens. While this risk has decreased as transparency has improved, it remains a consideration.

Regulatory risk is significant, particularly in India where the regulatory framework for crypto assets is still evolving. Changes in government policy could affect the availability or legality of stablecoin transactions.

Smart contract risk exists because stablecoins are built on blockchain technology. A vulnerability in the token's smart contract could theoretically be exploited, though major stablecoins undergo extensive security audits.

Counterparty risk exists because stablecoins depend on their issuing companies. If Tether Limited or Circle were to face financial difficulties, it could impact the value of their respective tokens.