Crypto Stablecoins – Their Importance And Role In Gaming

Crypto Stablecoins

Bitcoin and other crypto markets have always been highly volatile. In order to attract more people and institutions into the crypto world, there needed to be a way to bypass this detriment. Thus  the reason why crypto fans started to use stable cryptocurrencies. Currently, there are multiple crypto stablecoins, some marginal and some with gigantic market capitalization.

Their value is pegged 1-to-1 to the US dollar (or other FIAT currency), commodity or financial instrument. Clever mechanisms accomplish such an equilibrium. Every stablecoin will have a slightly different one, but the goal is always the same; to retain the value of the given coin or token.

The Crypto community willingly received the stablecoins. They facilitate many operations and extend the possibilities within the ecosystem.

What Is the Purpose of Stablecoin?

Stablecoins aim to provide an alternative to the high volatility of popular cryptocurrencies, including Bitcoin (BTC), which can make cryptocurrency less suitable for common transactions.

Stablecoins are more useful than more-volatile cryptocurrencies as a medium of exchange.   Stablecoins pursue price stability by maintaining reserve assets as collateral or through algorithmic formulas that are supposed to control supply.   

Tether (USDT), with a current market cap of $20.5B, was the first widely adopted stablecoin and mostly used as a tool for traders to easily go in and out of their cryptocurrency positions into a fiat-backed unit of account, without having to go through the arduous process of cashing back out into fiat itself.

Tether was quickly followed by other centralized stablecoins such as USDC (currently used by Coinbase), TrueUSD and PAX to name a few, and decentralized, or algorithmic-based stablecoins, such as the DAI and the USDN. Centralized stablecoins are backed by a reserve of fiat or a commodity within a centralized bank or vault, while decentralized stablecoins derive their value from an algorithmic network.

Stablecoins continue to come under scrutiny by regulators, given the rapid growth of the $153 billion market and its potential to affect the broader financial system.

Why Are Stablecoins So Important?

Though Bitcoin remains the most popular cryptocurrency, it tends to suffer from high volatility in its price, or exchange rate. For instance, Bitcoin’s price rose from just under $5,000 in March 2020 to over $63,000 in April 2021 only to plunge almost 50% over the next two months. Intraday swings also can be wild; the cryptocurrency often moves more than 10% in the span of a few hours.

All this volatility can be great for traders, but it turns routine transactions like purchases into risky speculation for the buyer and seller. Investors holding cryptocurrencies for long-term appreciation don’t want to become famous for paying 10,000 Bitcoins for two pizzas. Meanwhile, most merchants don’t want to end up taking a loss if the price of a cryptocurrency plunges after they get paid in it.

To serve as a medium of exchange, a currency that’s not legal tender must remain relatively stable, assuring those who accept it that it will retain purchasing power in the short term. Among traditional fiat currencies, daily moves of even 1% in forex trading are relatively rare.

As the name implies, stablecoins aim to address this problem by promising to hold the value of the cryptocurrency steady in a variety of ways.

30 cents

The market price of the TerraUSD (UST) algorithmic stablecoin in the early afternoon of May 11, 2022, after it broke its parity peg to the U.S. dollar.

Which Is the Best Stablecoin?

One of the most popular and largest stablecoin by market capitalization is Tether (USDT). It is pegged to the U.S. dollar at a 1:1 ratio and backed by gold reserves. It’s also consistently in the top five cryptocurrencies by market cap. You can find Tether on most major crypto exchanges, including Kraken, Binance, and Coinbase. 

Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual’s situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein.

USD Coin (USDC) and Online Gaming

Gaming has been at the forefront of cryptocurrency adoption since the beginning, with the earliest crypto applications developed as payments for digital goods within games. Dubbed as non-fungible tokens or NFTs, companies like WAX, CryptoKitties and Decentraland popularized the concept of digital goods available for trade and purchase.

The COVID-19 pandemic gave an extra boost to the gaming industry, with more consumers enjoying home-based entertainment. The gaming industry is projected to attract 3 billion players by 2023 with consumer spending on games projected to grow to $196B by 2022.

USD Coin (USDC) is a fully reserved digital dollar stablecoin that is issued by regulated financial institutions and redeemable 1:1 for US dollars. 

The market-leading stablecoin was launched in September 2018 to provide a trustworthy and transparent global stablecoin that enables anyone in the world to store, send, and receive digital dollars via on-chain payments.  

USDC’s key features as in-game currency and a payment rail include: 

• Price stability
• Transparency
• Regulated
• Operates on the Ethereum blockchain (like most blockchain games) and is expanding to other leading blockchains 
• Circle provides a suite of USDC solutions for game developers

USDC is a powerful payments solution for game developers who want to integrate in-game payment rails to enable players to buy and sell in-game items. 

USDC is a price-stable and transparent digital dollar stablecoins that is fully backed by reserved assets held in by regulated financial institutions that are attested by leading accounting firm, Grant Thornton LLP monthly. 

Additionally, USDC currently supports the Ethereum blockchain, which is the leading network for blockchain gaming. Finally, in combination with Circle’s suite of platform services, game developers can leverage USDC to seamlessly integrate stablecoin payments infrastructure into their games’ ecosystems to enable a broad range of programmatic payments, payouts, and wallet balances for gamers.

 “Stablecoins like USDC represent a promising payments innovation and provide an emerging platform for fintechs and digital wallets to enable new payment flows,” said Cuy Sheffield, Head of Crypto at Visa.

Stablecoins are a logical step for the gaming and the esports industry, providing seamless borderless payments for a global network of participants. While physical sports are tied to a city or a region, virtual sports were designed without geographies in mind, bringing with it certain execution challenges. For example, Epic games recently announced a $100 million for Fortnite esports tournament prize pool for its global audience only to then run into challenges making payments globally through traditional channels. Blockchain technology can streamline this process.

What Kinds of Stablecoins Are There?

Some would argue that stablecoins are a solution in search of a problem given the wide availability and acceptance of the U.S. dollar. Many cryptocurrency adherents, on the other hand, believe the future belongs to digital tender not controlled by central banks. There are three types of stablecoins, based on the mechanism used to stabilize their value.

Fiat-Collateralized Stablecoins

Fiat-collateralized stablecoins maintain a reserve of a fiat currency (or currencies) such as the U.S. dollar, as collateral assuring the stablecoin’s value. Other forms of collateral can include precious metals like gold or silver as well as commodities like crude oil, but most fiat-collateralized stablecoins have reserves of U.S. dollars.

Such reserves are maintained by independent custodians and are regularly audited. Tether (USDT) and TrueUSD (TUSD) are popular stablecoins backed by U.S. dollar reserves and denominated at parity to the dollar.

 As of late August 2022, Tether (USDT) was the third-largest cryptocurrency by market capitalization, worth more than $67 billion.3

Crypto-Collateralized Stablecoins

Crypto-collateralized stablecoins are backed by other cryptocurrencies. Because the reserve cryptocurrency may also be prone to high volatility, such stablecoins are overcollateralized—that is, the value of cryptocurrency held in reserves exceeds the value of the stablecoins issued.

A cryptocurrency worth $2 million might be held as reserve to issue $1 million in a crypto-backed stablecoin, insuring against a 50% decline in the price of the reserve cryptocurrency. For example, MakerDAO’s Dai (DAI) stablecoin is pegged to the U.S. dollar but backed by Ethereum (ETH) and other cryptocurrencies worth 150% of the DAI stablecoin in circulation.4

Algorithmic Stablecoins

Algorithmic stablecoins may or may not hold reserve assets. Their primary distinction is the strategy of keeping the stablecoin’s value stable by controlling its supply through an algorithm, essentially a computer program running a preset formula.

In some ways that’s not so different from central banks, which also don’t rely on a reserve asset to keep the value of the currency they issue stable. The difference is that a central bank like the U.S. Federal Reserve sets monetary policy publicly based on well-understood parameters, and its status as the issuer of legal tender does wonders for the credibility of that policy.

Algorithmic stablecoin issuers can’t fall back on such advantages in a crisis. The price of the TerraUSD (UST) algorithmic stablecoin plunged more than 60% on May 11, 2022, vaporizing its peg to the U.S. dollar, as the price of the related Luna token used to peg Terra slumped more than 80% overnight.5

A smart contract is a self-executing contract with the terms of the agreement between buyer and seller directly written into lines of code. The code and the included agreements are stored by a distributed, decentralized blockchain network. The code controls the execution of the agreement, and transactions are trackable and irreversible.

With the global pandemic keeping more of us indoors, online gaming continues to reach new highs. Esports audience is on track to reach 646 million viewers by 2023, growing 11% year over year, and already surpassing that of many other professional sports. This level of growth is continuing to garner the attention of fintech companies globally, looking to use blockchain technology to capture a slice of the $196 billion gaming industry.  

How Stablecoins Will Disrupt Online Gaming

The blockchain’s features of decentralization, individual asset ownership, unique digital items, and transparency are disrupting the gaming industry and changing the way players interact with in-game ecosystems. What has been missing, however, is a trusted, in-game currency that can be used cross-platform as well as outside of a game’s infrastructure, in digital dollars. 

That is where digital dollar stablecoins like USDC can come into play. 

Online gaming can benefit from stablecoins in four significant ways: 

• Monetization of in-game currency
• Create entire in-game payment infrastructures
• New revenue opportunities for gamers
• Enhanced revenue opportunities for game developers

Monetization of in-game currency

In-game currency is typically not worth anything outside the game in which it serves its purpose. Each gamer has to manage multiple different in-game tokens in the various games they play. Next to none of them, however, can be used to make real-world purchases as there are no native ways to monetize in game currency. While some players may sell in-game currency or items on platforms such as eBay, there is no simple and easy way for gamers to monetize their virtual cash. Stablecoin integration would alleviate this issue and enable seamless monetization of in-game currency. 

Create entire in-game payment infrastructures

Building in-game payment infrastructures that allow players to buy, sell, and trade virtual items and to enable game developers to make mass, programmed payments is complex and takes time. Using blockchain-powered stablecoins, in-game payment infrastructures can be built within a fraction of the time and at a much lower cost as the technology stack already exists. 

New revenue opportunities for gamers

Through the integration of stablecoins as in-game currency, gamers can easily spend their acquired in-game currency outside of the game. For dedicated gamers, this would enable them to monetize their gaming activities, which, in turn, would enable them to spend more time gaming. 

Enhanced revenue opportunities for game developers

For game producers, blockchain technology and stablecoins enhance existing revenue models. In an industry that is denominated by large game developers and publishers, improving revenue opportunities are a welcome sight for starting and smaller companies that are looking to compete with triple-A game producers. 

Example of enhanced revenue opportunities include:

• In-game purchases – to upgrade an avatar or to acquire new items – can be integrated more easily and at a lower cost using blockchain-based payments. 
• Game producers can also charge commissions for in-game economic activity, which can be seamlessly and automatically processed via on-chain stablecoin payments. 

In the last five years, several “gaming coins” emerged to address the challenges of the legacy in-game token ecosystem. However, none of them have succeeded, which can be attributed to slow adoption, high price volatility, and a lack of interoperability. 

Digital dollar stablecoin – like USDC – are better equipped to meet the needs of game developers, from global game manufacturers and to blockchain gaming ventures. 

The combination of decentralization, transparency, price stability, and the global recognition of the US dollar as a currency, makes stablecoins ideally positioned to become the go-to in-game currencies in the future of online gaming.  

Casino Games with Stablecoins

The Crypto gambling sector was influenced by the stablecoins rise, too. Holding crypto might be perceived as gambling on its own, so crypto gambling sounds like gambling squared. And that might be too risky for many people.

To attract new players, Bitcoin casinos started implementing stablecoins, mainly USDT and USDC. Nowadays, it’s possible to find gambling sites accepting BUSD, DAI, or Luna’s UST.

What games can you play with Stablecoins?

Most Bitcoin casinos offer similar games selection. Let it be in-house games or thousands of slots by various 3rd-party providers.

For real-time gambling, see the Live action tables.

If the casino supports stablecoins, you can try your luck in the following games:

• Dice
• Plinko
• Blackjack
• Bacarrat
• Roulette
• Slots – Various themes and designs

To increase your VIP level of sites’ loyalty programs, choose Dice. It provides the ability to put in enormous wagering during a short period. If you’re hungry for a monstrous hit, spin the reels of any slot machine. Join the Blackjack or other card game tables to feel the thrill of a live game.

As you can see, with stablecoins, your options are unlimited. Try to hit your lucky streak and walk away with a boosted USDT balance.

Bet On Sports With Stablecoins

Enjoy a fun time with crypto casino games, but you can also wager on sports with stablecoins. The majority of Bitcoin sportsbooks cover important matches of various sports and leagues.

Do you focus on pre-match markets or look for beneficial In-play opportunities? Participate in both.

Do you love soccer? Crypto sportsbooks got you covered. Deposit any supported stablecoin and place a bet. If you are bored of the standard betting lines, browse through hundreds of side bets.

Are you an esports expert? No problem. Place sophisticated bets on many available esports betting lines from titles such as League of Legends, Dota2, or CS:GO. Most crypto sportsbooks provide an esports section.

Stablecoin Regulation

Stablecoins continue to come under scrutiny by regulators, given the rapid growth of the $130 billion market and its potential to affect the broader financial system.6 In October 2021, the International Organization of Securities Commissions (IOSCO) said stablecoins should be regulated as financial market infrastructure alongside payment systems and clearinghouses. The proposed rules focus on stablecoins that are deemed systemically important by regulators, those with the potential to disrupt payment and settlement transactions.7

Moreover, politicians have increased calls for tighter regulation of stablecoins. For instance, in September 2021, Senator Cynthia Lummis (R-Wyoming) called for regular audits of stablecoin issuers, while others back bank-like regulations for the sector.

Conclusion

Stablecoins are a great innovation in the current crypto world. The ability to shield yourself from crazy crypto price movements and retain access to crypto gambling is fantastic.

If you’d like to turn a part of your crypto portfolio into stables, do so on centralized or decentralized exchanges.

Be happy as you keep access to Bitcoin casinos and sportsbooks. Place bets as you’d do with Bitcoin and other altcoins.

Stablecoins offer a way to mitigate the concerns and provide an option for how to enjoy casino games and stay away from sometimes painful crypto market fluctuations.  “The solution is to hold and operate with stablecoins within the crypto space.”