This blog post will cover:
A few reasons why stablecoins operate on multiple blockchains
How to choose?
The real case
Conclusion
In the past few years, stablecoins have made significant progress in the cryptocurrency market; by the beginning of 2023, their combined market capitalization will have surpassed $119 billion. Stablecoins are well-liked by cryptocurrency traders because they offer a means of hedging against volatility and make trading between different exchanges easier.
However, buying stablecoins alone is not always an easy way to enter the cryptocurrency world. The number of blockchains that some of the top stablecoins are using is one thing that some traders find confusing. Why is that taking place? What should I choose and take into account before making a purchase? Let's attempt to solve it.
Stablecoins can be used on multiple blockchains for the following reasons.
Stablecoins are currently active on several blockchains at once. There are a number of causes for that:
Higher accessibility
Issuers can increase accessibility and give users more options by issuing stablecoins on various blockchains. Given that different blockchains have different features and use cases, this is particularly crucial. Issuers can reach a larger audience by offering stablecoins on a variety of blockchains and tapping into different user bases.
Diversification of risks
Issuers can spread their risk and lessen the effects of any problems or bugs that may arise on a single blockchain by issuing stablecoins on several different blockchains. This is crucial given how quickly and volatile the cryptocurrency market is changing and how even minor problems can have big effects.
Cost effectiveness
Stablecoin transfers may be expensive because some blockchains have higher transaction fees and slower confirmation times than others. Issuers can take advantage of less expensive and quicker networks by issuing stablecoins on a variety of blockchains, which lowers the cost and length of the transfer process.
Regulation observance
Regulations and requirements for stablecoin issuers may vary between jurisdictions. Issuers can abide by various regulations and give users a stablecoin that is suited to their individual needs by issuing stablecoins on various blockchains.
Stablecoins that operate across several blockchains offer users and issuers more options, lower risk, increase cost effectiveness, and guarantee regulatory compliance. Stablecoins will likely be issued on more blockchains concurrently as the cryptocurrency market continues to develop in order to meet the wide range of needs of the community.
How to choose?
There are a few crucial factors to take into account when deciding which blockchain to use when purchasing a stablecoin.
The transaction fees related to each blockchain should be taken into account first because they can differ greatly between various networks.
Additionally, keep an eye on how quickly each blockchain confirms transactions, as some blockchains might take longer than others to do so.
Consider each blockchain's security and reliability, as well as the degree of decentralization and community support for each network.
Don't forget to verify that your cryptocurrency wallet works with the selected network; if it doesn't, create another one or pick a different one.
Different stablecoins might have different use cases, such as being created for particular sectors of the economy or payment systems. Understanding each stablecoin's intended use will help you decide if it will meet your investment needs.
In conclusion, there is no one-size-fits-all solution when it comes to choosing a blockchain; it all depends on your personal requirements and preferences.
The real case
It is always preferable to test a theory using real-world examples. So let's look at USDT, one of the most well-known stablecoins available today. As of April 2023, the USDT's market cap was over $80 billion, according to Coinmarketcap. Each coin in this stablecoin is backed by a dollar held in reserve and is pegged to the US dollar.
The simultaneous operation of multiple blockchains is one of the distinctive qualities of USDT. The fourteen different blockchains that support USDT at the moment include Ethereum, Tron, Omni, EOS, Algorand, Solana, and others. As a result, users can select the blockchain that most closely matches their requirements and preferences.
Similar to what we discussed earlier, USDT is available on various blockchains in order to increase accessibility and give users more options. Because different blockchains differ in their features, transaction costs, and confirmation times, Tether can serve a wider range of users by putting USDT on a variety of them. Additionally, having USDT on multiple blockchains ensures that users have access to USDT regardless of which blockchain they prefer to use and lowers the risk of any problems or bugs that may develop on a single blockchain.
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Conclusion
We have learned about the justifications for stablecoins operating simultaneously on multiple blockchains in this article. Additionally, we covered the key factors that must be taken into account before purchasing any stablecoin and looked at a real-world example involving USDT. You are welcome to use the SimpleSwap service if you need to select or modify the USDT network. All that's left to do is "pick your fighter," or the blockchain with which you identify most strongly.
Always remember to conduct your own research before making any purchases; it's a crucial step to safeguard yourself from a variety of unforeseen crypto-related issues.