Let’s first define “stablecoins.” These are cryptocurrencies that are designed to maintain a persistent value, often US$1.
They don’t always maintain the “dollar peg.” They are, after all, tradable items that potentially rise or fall in value. But typically, the issuers, or the algorithm, are trying to keep the value very close to $1.
Incidents of stablecoins “failing” are out there. One high profile example is the collapse in value of the “Iron” coin (part of the “Titan” project) which led to losses by Mark Cuban and others.
However the highest capitalization stablecoins have been fairly consistent and allow crypto traders to park some of their holdings in what sort of amounts to US$-denominated crypto bond: many return small amounts of “staking rewards” (interest) for their holders.
Some high-profile examples include Tether and USD Coin, and many crypto exchanges issue their own stablecoins, for example Binance USD.
Are these worth holding? It’s kind of like assessing bonds—is getting that amount of return worth the risk presented by the issuer? That’s the way to decide to hold stablecoins in a global sense. For many investors, stablecoins present the additional complexity or benefit of being denominated in a foreign currency.
But the time for American investors to hold stablecoins may be drawing to a close. Unfortunately the Fed seems to have a problem with them, some politicians including Elizabeth Warren are complaining about them as part of a broader attack on de-fi.
The regulatory and political environment becoming hostile is a systematic risk to stablecoins for US-based investors. Inflation is still pretty hot at the moment, leaving US$-denominated assets eroding in value anyway. Some types of traders will continue to see benefit from using stablecoins. But for long-term investors who had thought of them as predictable US-dollar-denominated stores of value, probably best to exit this type of crypto into cash or even (non-stablecoin) crypto holdings for now.