Risk Mitigation: Stablecoins act as a hedge against the volatility of other cryptocurrencies. During market downturns, investors can convert their holdings to stablecoins to preserve capital.
Store of Value: Unlike volatile cryptocurrencies, stablecoins maintain a relatively stable value, making them a reliable store of value during uncertain market conditions.
Trading and Arbitrage: Stablecoins are used as a stable trading pair on exchanges, facilitating quick and easy transactions between different cryptocurrencies. They also enable arbitrage opportunities across exchanges.
Yield Farming: Some stablecoins can be used in DeFi protocols for yield farming, allowing investors to earn interest on their holdings. However, this carries risks, including smart contract vulnerabilities and impermanent loss.
Diversification: Stablecoins can be part of a diversified cryptocurrency portfolio, providing stability and reducing overall portfolio risk.