Steemit Crypto Academy Contest / S8W2 - What are Stablecoins?
The stable coin unlike the other crypto coins has its main purpose and function in the crypto world. Which is why it is something special and unique in the crypto world. I will like to share with you below in my article, my understanding of what this stable coin really is.
Unlike the other cryptocurrencies, like steem, tron and BTC who’s value is always being affected by the volatility of the market. The stable coin always and at all time maintains a stable and fix value in the market. This is why stable coins are being used to tie or pegged with other coins.
There by rendering it to be more useful than the other coins which are affected by the volatility in the market.
Stable coins are usually pegged with currency, commodity which i earlier stated. The commonly pegged currency and commodity is the usd and gold.
Stable coins are able to maintain their price stability by setting the assets(commodity or currency) they are being pegged with as collateral.
That is to say they use the value of these specific assets as theirs. This is because these assets like in the case of currency have a stable value.
So the stable coin being pegged to these assets renders it to be having the same value as the assets. So we can then conclude that stable coins maintain their stability through pegging or the tie.
Stable coins use algorithm formula to maintain their stability by controlling the supply of the coin in the market and keeping it within a specific range.
The stable coin was introduced to help traders to hold on to a coin without the fear of it being affected whenever the market rises or drops. Traders after a successful trade tries to keep or store their assets in stable coins. This is because the stable coin has a fixed value so their assets is not affected by the market.
The crypto market as we all know is not a stable or say fix market. It always seen to be affected by volatility thereby rendering the other coins which aren’t stable coins not to be having a fix value. So in order to over come such crisis, the stable coin whise value is pegged to a different assets like currency or commodity with the same ratio as the asset. Which helps these stable coins to always maintain their price stability.
The underlying or pegged assets can also be any of the popular or high cryptocurrencies like Bitcoin and Etherium. This pegged assets tries to always maintain a stable price thereby rendering it to be used in whatever state the crypto market is to perform monetary transactions without the fear of price fluctuation or volatility. So trader’s don’t have to be stuck as to how they will perform monetary transactions if their cryptocurrencies don’t rise high for them to make profits in order to use it to perform transactions.
BUSD which is an acronym for Binance Usd. The binance stable coin is also pegged to the usd currency. It is actually a stable coin for one of the popular exchanges which is the binance exchange.
Actually the aim of the purpose of launching or creating this coin is to maintain a stable price and also for the purpose of transactions within and outside the exchange.
The USDC is also one of the most widely used stable coin most especially for the purpose of swapping, yield farming and de-programs. This has rendered it to be ranked as one of the best stable coin.
USDT which happens to be my most used and favorite stable coin is mainly used for the trading of crypto assets in the various exchanges. The usdt is what most traders use for keeping or storing their assets after trades. It is actually one of the best among all the stable coins.
How the stability is actually maintained is this way, the underlying assets needs to be in constant or continues supply to the pegged coin. The constant supply is what maintains the price value of the stable coin. Also in the case were the underlying asset is a cryptocurrency, both the pegged coin and the cryptocurrency has to maintain a ratio of 1:1 at all cost in order to prevent the coin from being unstable. I am saying this because of the volatility of the cryptocurrency.
A good example of a stable coin loosing it stability is the Terra UST. This was because it was pegged with a coin known as the LUNA coin which happens to be loosing it value in the market. So as the LUNA coin was no longer able to constantly supply the UST so the UST stable coin gradually began to loose its stability. Which in the end rendered the stable coin to loose it stability.
ADVANTAGES
The very first advantage the stable coin has over the traditional cryptocurrencies is it stability. Unlike the traditional cryptocurrencies which are affected here and there by the volatility or fluctuations of the crypto market. But the stable coins being stable are not bothered by such factors.
Stable coins are accepted on every platform at any point in time and used for buying all kind of crypto assets. This is due to it’s liquidity factor. They are used for performing huge transactions across exchanges and platforms.
A trader can safe or keep his assets in the form of a stable coin in other to wait for the perfect time to get into the market. This is because his assets in the form of stable coin is not affected by volatility.
DISADVANTAGES
The tendency or possibility of the stable coin loosing it stability is one of the most scariest factor about it. Whenever a coin looses it stability, traders are affected heavily because they see it to be one of the safest form to keep their assets.
Stable coins are venerable exposed to attacks from hackers and scammers. This is because stable coins are just like any other cryptocurrency on the market. So if incase a hacker finds his way through one it could mean a big loss to it traders.
The underlying assets seem to be having a major impact on the coin, so if in any case the underlying assets looses it’s value, then the stable coin is also affected. That’s to simply say that the volatility of the underlying assets affects the stable coin too.
Also, these same stable coins which are pegged with other assets like currency, currency or other cryptocurrency is likely to be affected by the volatility of the underlying assets. So if the underlying assets looses it value, it renders the stable coin to also loose it stability.
Las monedas estables son una gran jugada para contrarrestar los riesgos derivados de la volatilidad, su capacidad para mantener estable su valor es una gran característica; sin embargo, tiene su parte vulnerable y esto se puede perder. Exito en tu gran entrada, saludos cordiales!!
Thank you for taking your time to read my article and also for the additional insight or information
Hello friend @habdallah,
This is a wonderful entry you have, you have fulfilled all needed criteria to participate in this Contest.
You have explained what a stablecoin is and also why it was created.
You gave your knowledge on the question that asks if a stablecoin can lose its stability, yes, a stablecoin coin can lose its stability.
You also went further to explain the advantages and disadvantages of a stablecoin in comparison to our traditional currency.
Overall, you have done a great job, keep up the good work.
Cc
@jueco
Hello!
You have provided a clear explanation of what stablecoins are and how they work. It is important to note that stablecoins are introduced to maintain a stable price and are not affected by market volatility.
I appreciate the fact that you have mentioned the most popular stablecoins like Tether, BUSD, and USDC. It is good to know that you use USDT the most for the trading of crypto assets in the various exchanges.
You have also mentioned that stablecoins can lose their stability due to various factors like the underlying asset losing its value or credibility. It is important for investors to keep an eye on the underlying asset to ensure that their stablecoins remain stable.
Overall, your comment is well-written, informative, and engaging. Keep up the good work!
Thank you for the feedback. I really appreciate it
As always dear friend, you have shared a well detailed and interesting article for us all.
Stablecoins as you have rightly mentioned were designed for creating stability of price value across the entire Cryptocurrency space.
BUSD and USDC are both very popular and uniquely designed stablecoins, which has been adopted by many investors for storing value. Nevertheless, I also prefer using USDT to other stablecoins, as it's more popular and widespread across various exchanges in the Crypto space.
It was interesting reading through your article friend, and I commend your effort and time to always deliver excellent. Goodluck in this contest brother.
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