Core Question

What roles do stablecoins perform in a portfolio? And, when should you use them?

All about stablecoins

We all know stablecoins and what they are. But for anyone new (although, if you are on Publish0x, then you should know bexause withdrawls are in USDC), stablecoins have a pegged value. They have 0 volatility under normal circumstances thanks to trust, deep liquidity, and arbitrage bots stabilizing prices constantly.

What roles do stablecoins have?

Stablecoins are actually very beneficial when used correctly. However, on the flip side, if used incorrectly, they can be no better than having fat wads of $100 bills under your bed.

The goods:

Stablecoins are extremely useful in a variety of use cases. The top two are stability and a parking place on the blockchain.

Stablecoins have great stability due to a mix of factor. This is where all the different stablecoins like USDT, USDC, DAI, Digidollar, and others, all differ. These stay pegged at $1, whether backed by government bonds, cash, or other crypto. Of course, they still fluctuate a bit, but, unless you're transacting like hundreds of thousands of dollars worth at a single time, it will be mostly the same for what you buy and sell, minus any fees. This is great for people looking to have crypto because it is needed for payment or has a discount, without having to put it into BTC or altcoins, where just 5 minutes can make or lose you money.

The second benefit is that they offer a place to park your money while waiting. This is useful for when you want to cashout of a crypto because it is up significantly, or when the price crashes and you want to quickly buy. Stablecoins are useful in these situation because you don't have to route through an exchange, complete AML and KYC, wait for some time whether withdrawing/depositing, and then finally spend it. You can swap quickly, or at least faster than going through an exchange. 

The downsides:

The biggest downside is if you just hold your stablecoins HODL style, you'll lose out due to the worst tax there is...inflation. Your stablecoin loses every year due to the inflation of your currency (for example, EURC would lose different amount every year compared to dollar based stablecoins).

I say this because I'm sure we all know of that one person that earns money from say a faucet or survey platform, and then they say they will keep it as stablecoins. Well, might as well hold cash because at least with cash no one can ever freeze it, nor can anybody random look up your address and tokens. 

And, so then people try to lend their stablecoins, saying that it will provide a guaranteed way to keep up or beat inflation. However, there are risks associated with that. I would recommend reading this article on USDC lending. However, if you really want to, then who am I stop you.

What I do

So, with all of that in mind here is what I use my stablecoins for. I usually only use stablecoins if it is as a form of payment. In other words, I won't openly buy stablecoins. I do this because I don't really like managing my crypto. I'm more of a accumulate and never look at it person. 

For example, I only have USDC on OP from publish0x. I would've never gotten into it otherwise. And even then, as soon as I receive my payout, I immediately swap to other assets.