Steemit Crypto Academy Contest / S8W2 - What are Stablecoins?

I am very thrilled to be taking part in this week's crypto engagement contest.

The very idea of what stable coins really are and it's uses it's very important one that I feel all crypto investors, users as well as enthusiast should know.

Now I will like us to be go into the main topic of what stable coins are;

Yes, when we talk about stablecoins from the name itself it should give us an idea of what it is, I mean it is still a cryptocurrency asset yes it is a coin as the name entails, but this type of coin or cryptocurrency asset is one whose value is being pegged to a currency of a country or being pegged to a financial instrument as the case maybe.

Now we call it stable, the very word stable means is somewhat different from other crypto asset, ordinarily crypto asset is a highly speculative and volatile asset and one can't guarantee with a 100% certainty what the price will be even in the next minute.

Now crypto assets price are unstable and subject to volatile price changes and often takes unexpected turn which often shocks the market.

For instance in the last bull run, where many tried to predict the price of bitcoin but almost all failed, I mean there was no model that wasn't used to try to accurately tell where the price will be, even stock to flow model which has being accurate in the previous bull run failed to accurately predict bitcoin top this time around.

My point being crypto assets are volatile and that's why it will be hard for it to be used openly as a means of transaction because it often takes and unexpected turn.

I mean in the previous bull run alone stock to flow model had to adjust it's prediction of bitcoin price and yet even the second one failed the once accurate model was wrong twice this time around, no surprise there as the market becomes even more unpredictable as time goes by.

Now since crypto asset is this speculative and volatile to the point that one could be made a millionaire overnight and one could lose millions in an hour even shows the reason why there was a need for something stable.

Yes in this area of price stability to know the value of your money wouldn't take a rapid turn in just a moment that's why there arise a need for a stable coin.

Ofcourse that one thing that separates a stable coin from other crypto asset is the fact it always tries to ensure or maintain a stable price.

Yes because of its stable nature it's more suitable for transactions when compared to other volatile crypto asset.

Now how is it able to ensure a stable price, well it's because it's being pegged to a currency yes a fiat currency, most stable coins are often being pegged to the US dollar, yes, this is how it's able to ensure a stable price because it's value is being tied to the US dollar or any other fiat currency.

We often wonder why countries are skeptical in accepting cryptocurrency as a medium of exchange but the truth is this, because of its high volatile nature.

Now dial back to 2020/2021 everybody was going crazy because of the sweet gains of the crypto market bitcoin and other altcoin alike were goin to the moon per say there was a lot of noise from crypto enthusiast but come back to the now when everything has lost atleast up to 60-90% of its value then.

From where price was then to where it is now it's the reason crypto is being frowned out that's why there was a need for the creation of a stable coin, a coin which will retain it's value despite market conditions.

Yes the need for a coin which neither appreciates parabolically or depreciates rapidly but remains stable and could always be use as a means for transaction because it's value never change it's why stable coins were created

Stablecoins are very useful in many ways in the crypto market.

Stability, yes the fact it doesn't lose or gain rapidly in value despite market conditions is one usefulness as it offers investors stability in their asset value.

When trading other crypto asset and one is in profit and want to ensure or secure that profit then stable coins is always the safe choice to avoid loss in value.

We also use stablecoins in investing and purchasing of cryptocurrency as well as defi application which also guarantees return in investment.

Indeed stable coins has many uses as we can see and it's often the best to save our funds during bear market.

We have many Stablecoins in the crypto space some of which includes;

1). BUSD

2). SBD

3). USDC

4). UST

5). USDT

6). HBD

7). TUSD

8). USDD

Now these are some of the popular Stablecoins in the crypto space.

Personally I love to use usdt, usdt more because that's what I trade with.

I trade futures on binance so prefer usdt pairs and easily exchange also in spot with it, let's just say it's what I have become accustomed to, though at times I also use usdc especially then there was speculations about usdt

Well stable coins often has its value pegged to an outside currency or algorithm and sometimes some may loss their peg to that currency and there are many cases where we have seen this.

For instance we have the case of USDD, this is the tron network stablecoin and is pegged to the us dollar, and according to them when it was launched they said it has very little likelihood of slipping below $1 because it was a colaterized stable coin.

Now when a stablecoin lacks sufficient collateral and a huge selloff by whales occurs it leads to it losing its peg, this was exactly what happened to USDD despite claims of being over-colaterized yet when whales dumped about 11 million USDD tokens on Nov 8, 2022 it lost it peg as it fell to $0.96 on Nov 9, 2022. Just 24 hours later.

Now this happen due to lack of sufficient collateral reserves, what's the use of this collateral reserves, it helps to protect the stablecoin when a whale dumps a massive holding of the coin.

Now they had earlier claimed to have a collateral reserve more than the total supply but when this huge unexpected sell off happened the stablecoin dipped below and lost its peg probably they miscalculated their collateral reserves.

Ofcourse it's really no surprise there as something no matter how good usually has dismerit and no matter how bad has some advantages and Stablecoins are no different, and will be listing some of this advantages and disadvantages

Stable coin despite the pros and notable cons overall is a good addition to the crypto space and it gives us a general sense of security for traders and investors alike to know there investment is safe so one can sleep soundly at night🙂