A STUDY ON IMPACT OF STABLE COINS ON MODERN DIGITAL FINANCIAL ECOSYSTEM

Abstract

The financial sector has been revolutionized by blockchain technology and digital assets, offering novel investment opportunities. Stable coins, in particular, have risen to the fore for their blend of blockchain benefits and moderate price fluctuations. Stable coins differ from other cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH), which are known for their volatile price swings, with their stable value, meaning they can be employed in payment, trading, decentralized finance (De Fi), and portfolio management. This study aims to assess USDT and DAI's contribution to investment strategies in the current investment landscape between 2022 and 2026 alongside Bitcoin and Ethereum. The secondary data was analysed via time series analysis, 3 year moving average, rolling volatility, market capitalization, and correlation analysis of data obtained from Coin Market Cap, Coin Gecko, Reserve Bank publications and other financial databases. The results show that USDT and DAI possessed less volatility, more price stability and better capital preservation when compared to traditional cryptocurrencies. The study also finds that inflation, interest rates and US Dollar Index (DXY) affect the performance of stable coins and market demand. While there are regulatory, transparency, and market trust issues to address, stable coins have proven to be a potentially low-risk digital asset. In conclusion, according to the study, USDT and DAI are good investment alternatives for those who are looking for stability in the cryptocurrency market and are either conservative or new investors.