Despite all the hype that blockchain and cryptocurrencies are getting, they continue to struggle to gain traction in commercial applications particularly in payments.

Bitcoin, cryptocurrencies' poster child, has somehow failed in its function as a digital currency. Its network can be slow and its price is also too volatile to be used for day-to-day transactions. It also relied on other services such as wallet providers, payment gateways, and exchanges to become usable for non-technical users.

Among these reasons, what has made cryptocurrencies particularly unattractive to businesses is their volatility. Most cryptocurrencies' prices can swing drastically. A business supporting Bitcoin, for example, must be able to effectively manage price swings. Otherwise, it can lose money. The crypto market also trades 24/7 making it tedious to keep track of coins’ prices and trade to avoid losses.

Stablecoins are among the ways the crypto space has attempted to solve volatility. The value of these tokens are pegged to assets like fiat currencies. For businesses, stablecoins can lessen the impact of volatility particularly to their cash flow. There are now a growing number of these stablecoin projects.

So could these crypto tokens finally encourage more companies to adopt crypto for their businesses?

The problem with volatility

Businesses face a great challenge managing crypto's volatility. Say a business decides to support Bitcoin payments. It sells a product for $100 and receives $100-worth of Bitcoin. If Bitcoin’s price suddenly suffers from a 10 percent drop, the business instantly takes a $10 loss.

Cash flow and supply chain management can then become tricky. Supporting a volatile asset means that the business' own purchasing power fluctuates. The business can't readily spend cryptocurrencies. Expenses such as payments to staff and suppliers have to be made and they are still typically paid out using fiat currencies.

To use its Bitcoin from sales, the business has to exchange them. These conversions through cryptocurrency exchanges are further subject to transaction and currency conversion fees, all of which can immediately cut into the business’ margin.

Stablecoins to the rescue?

It is in these cases where stablecoins have the opportunity to shine since they are pegged to a particular currency. While they are still susceptible to market volatility, the fluctuations are miniscule compared to most cryptocurrencies. A $100 sale paid through a stablecoin would very much hold its value. Businesses would be able to hold on to these coins for a longer without having to worry about instantaneous price fluctuations.

There are currently several stablecoins in circulation in the market. Tether is among the more popular of such projects. It features USDT and EURT tokens pegged to the value of the US dollar and Euro respectively. MakerDAO also launched the Dai stablecoin, a decentralized alternative to Tether’s USDT. IBM also backed another "crypto dollar" project made available through financial platform Stellar.

There is also interest in diversifying the currencies to which stablecoins are pegged. Payments platform T.OS is set to offer mechanisms for its T.OS Payable (T.OSP) token to be pegged to any local currency. The project seeks to promote stablecoins as digital money for use by merchants in various territories and not be limited by US dollar-pegged coins.

So, with T.OS any country can create its own stablecoin as a form of "e-currency". So on Singapore 1 T.OSp will worth 1 SGD (pegged with Singapore's currency) and in Hong Kong 1 HK dollar.

Enhancements needed

Despite these developments, the gap between stablecoins and their use in commerce still exists. Tether, for instance, has been marketed as digital cash. However, much of its use has been in crypto exchanges as means for investors to "park" their crypto investments.

What stablecoins need is to be enhanced with more consumer and merchant-focused features. Platforms must feature functionalities that would make them better suited for commercial purposes. The more successful crypto payments services integrate functionalities such as wallets, fiat exchanges, pay cards, and merchant services. Stablecoin projects could do the same.

This way stablecoin users may be able to enjoy most of the benefits of using crypto payments such as security and auditability without having to contend with downsides such as volatility.

A developing ecosystem

The influx of projects focused on stablecoin and payments is raising competition. The space only stands to benefit from this. Competition can drive players to innovate and further solve the nagging issues that prevent the wider adoption of cryptocurrencies in payments.

This would also force projects to create better synergies with other services in order to craft more seamless and frictionless customer experiences. Stablecoins already address the major problem of volatility which hinders businesses from adopting the technology. As the ecosystem matures, the upside to supporting crypto payments also increase, giving businesses little reason not to embrace the technology.