Steemit Crypto Academy Contest / S8W2 - What are Stablecoins?
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Greetings to you all steemians and welcome to @jasminemary post. You are highly welcome here. In this post I have so far talk about stablecoins to the best of my understanding based on the questions asked in the SteemitCryptoAcademy Community contest.
Use your own understanding to explain what are stablecoins? And how did you manage to ensure a stable price?
To my own understanding, Stablecoins are those digital currency that remain stable in values and pegged to gold or U.S. dollar. Stablecoins are simply created to reduce the volatility of cryptocurrency such as Bitcoin, Ethereum and many others that are not pegged. One good thing about stablecoins coins is that it stands as bridge between cryptocurrency and everyday trading of using fiat currency that may not be accepted in some other exchanges.
In a nutshell, stablecoins are digital Currency that is pegged to valuable assets like gold and U.S. Dollar to allow people to perform cross border transactions. Stablecoins doesn't fall in value, they rise and fall, it depends on the asset which they are pegged with. Like for example, stablecoins like USDT BUSD etc. are pegged to US. Dollar, which means they rise and fall, is based on how dollars are trading.
Why were stablecoins created, and how are they useful?
Stablecoins were created for so many reasons, of which its general purpose is to enable crypto traders to invest in whatever crypto exchange they're having to choose to with and easy means to enter the market and pullout of the crypto market at anytime.
Another reason why stablecoins were created is for the use of cash transactions between those doing crypto investment and those that want to save their money in a currency that doesn't devalue. Also, the creation of stablecoins is to offer crypto traders and Investors the opportunity of trading safe. I.e. avoiding losses since the crypto market is highly volatile.
As a crypto trader, you can make use of the advantage of stablecoins and avoid losses when the market is bearish and come back easily when the market is experiencing bullish.
Finally, to this, stablecoins were created to stop the barriers that are face when performing international transactions. The idea of stablecoins is to have universal money that is acceptable all over the world as a way of settling international payments.
Stablecoins are very useful within and outside the crypto industry. One of the usefulness of stablecoins is the store of values. Like in the case of NIGERIA, I can decide to purchase and hold stablecoins to prevent my Naira from further falling. Also, as a crypto trader stablecoins are very useful when crypto market is experiencing bearish which I can convert my assets to stablecoins than allowing volatility to finish my assets.
What are the most popular stablecoins? Which do you use more and why?
There are a lot of stablecoins in the crypto market and financial market. However, despite the different stablecoins that we have, the most popular stablecoins are:
- Tether (USDT)
- Binance USD (BUSD)
- USD Coin (USDC)
- True USD (TUSD)
- Dai (DAI)
- Magic Internet Money (MIM)
- Neutrino USD (USDN) and
- Reserve Rights (RSV)
The eight (8) stablecoins name above, are the most popular stablecoins that I know best. The one that I use the more is Tether (USDT) and Binance USD (BUSD). This two stablecoins are the ones that I often used on my Binance exchange. The reason why I know them more than others is that they are in Binance exchange and I do swap my coins to them whenever I notice that the crypto market is on bearish and also if am to buy and sell crypto I used them which you can see from the screenshot below.
Can stablecoins lose their stability? If the answer is yes, then cite some cases with an explanation of the reasons of that.
Based on the crashed that happened between Luna and UST it is not doubt that stablecoins can lose their stability. Stablecoins can lose their stability if there is no enough reserve to protect the coin from falling. Beside having enough reserve, liquidity can also cause stablecoins to lose their stability. For stablecoins that are pegged to Fiat currency like the U.S. Dollar, there can lose their stability if there aren't backed well with strong asset.
What are the advantages and disadvantages of stablecoins compared to traditional cryptocurrencies?
Whatever have advantages equally have it own disadvantages which stablecoins is not different. Having said so, below are the advantages and disadvantages of stablecoins.
Advantages
One of the great advantages of stablecoins is that there are built and maintained on blockchain technology which makes stablecoins transactions very fast and cheaper.
The second of stablecoins is that they're zero volatility. Stablecoins is not volatile like Bitcoin, Ethereum and other cryptocurrencies. As a trader, you can buy and hold stablecoins for a longer period without your assets devaluing.
The third advantage of stablecoins is that they're digital assets that are use for cross border transactions. Stablecoins can be accepted by almost everyone, both crypto traders and business owners.
Disadvantages
One of the disadvantages of stablecoins is that some of them are operating as a centralized currency, since they are backed by centralized assets. As we can see, the structure of stablecoins is like a centralized structure.
The second disadvantages of stablecoins is that they lack transparency in terms of publishing reserve. Like for example, stablecoins like Tether USDT have several times been criticized by US government for not publishing an accurate reserve of the company holding.
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Thank you for reading through my post.
Dear @jasminemary fantastic article about stablecoins I like your concise description of stablecoins and their function in the cryptocurrency market. For those who are unfamiliar with the idea, your explanation of how stablecoins act as a bridge between cryptocurrencies and regular fiat currency trading is quite helpful. It was also fascinating to me that you mentioned how stablecoins can be used as a store of value and for international transactions. In particular, your explanation of how stablecoins can lose their stability was informative. You also discussed the most well-known stablecoins and their benefits and drawbacks. Your post is well-written and interesting overall. Continue your wonderful effort! Wish you success in the contest
Thank you for reading my post.
it was very informative and its always a pleasure interacting with u
Hi dear @jasminemary Thanks for taking part in the challenge you have written well about the topic.
You are very right Luna and Ust crash was the great loss for the cryptoworld and in this crash many of the people loss their assets.
It is great loss when there are no more amount of funds are present to backedup the stability of the coins.
In the stabilize form these coins prove good for the traders in holding etc.Another benefits is that it does not fluctuate its price suddenly while making the transactions.
This increases the trust of the users on the stable coins and chosse it while staking and holding .
Good explanation.Thanks for sharing. Good luck for the contest.
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