Steemit Crypto Academy Contest / S8W2 - What are Stablecoins?

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Hello friends in this community, I trust you're good. Trust me I feel happy to be here once again. The topic before us is quite interesting and engaging, I couldn't but prepare my entry on seeing the contest topic.

Stable coin is an interesting topic in the crypto world. If you're not new to this space, then the word stable coin shouldn't be new to you. But come to think of it, what would the crypto space look like without stable coin? How many people would have been huge casualty in this space? Anyways let me delve into the topic proper using the guideline given... Shall we?

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Use your own understanding to explain what are stablecoins? And how did you manage to ensure a stable price?

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I am still very young in the crypto world but then within the short time I've spent I can say something about stable coin. Stable coin are actually crypto currencies whose price are stable and fixed in all circumstances unless there is an unforseen breach somewhere.
Their value are actually pegged to an external asset, commodity or fiat such as U.S Dollar and algorithm.

In other words, it is design to remain fixed in value or price in the face of hard or adverse condition in the market. Adverse market condition such as volatility has been one of the major problem traders or investors face in the market prior to the advent of this stable coin.

So many have suffered loss in the face of adverse and unfavourable market condition that is why the introduction of this coin brought hope to many as it has contributed immensely in the minimization of loss.

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Why were stablecoins created and how are they useful?

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Stable coin are created for quite a number of good reasons. I mentioned above that it has helped to reduce investors loss in recent times. It is also important to note that Volatility is one major problem faced in the crypto market.

The best of trader cannot predict the market 100%. The best of the best can push his or her accuracy up to 90% or more. What am trying to say is that volatility happens unannounced. By volatility I mean sharp increase or decrease in the price of asset.

This is why we need stable coin whose value is tied to an underlying asset in the ratio 1:1 meaning no matter what hit the market including volatility, they can still maintain a fixed and stable price in the face of the shaking.

The underlying asset can be commodity like gold, silver, oil and the like. It can also be a crypto asset which could be Ethereum or Bitcoin, it can also be fiat such as U.S Dollar. The goal is that you don't get caught up in price fluctuation such that we run into loss.

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What are the most popular stablecoins? Which do you use more and why?

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We have quite a number of Stable coin out there and this include the following;

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• BUSD

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BUSD simple means Binance USD which is actually tied to the U.S Dollar. This is the very one created by binance exchange which aims to stabilize price. It has become a coin that is now widely accepted by many, especially those who use the exchange as there are some benefit you get for transacting with BUSD on the binance CEX.

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• USDT

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USDT which is also known as tether . It is tied to the U.S dollar (Fiat). Personally I used this stable coin more than every other. I decided to join the millions of people who use it out there. No doubt, it ranks among the top and most used stable coin out there.

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• USDC

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This is another generally accepted stable coin out there. Although I have not used it before. It is also tied to the U.S dollar and also rank among the top stable coin we have in the market today.

In summary we have BUSD, USDT, USDC, TUSD and the likes. I have only used just two of the aforementioned stable coin which are BUSD and USDT and my experience with the two has been awesome so far.

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Can stablecoins lose their stability? If the answer is yes, then cite some cases with an explanation of the reasons of that.

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Well I am about to break your heart with my response to this question. The question is actually YES. My answer is not without proofs, it's no more a new that TerraUSD actually flopped months ago which threw many into a big pool of loss so many have not recovered from today.

TerraUSD is a stable coin that was designed to function algorithmically coupled with the underlying Luna asset it is pegged with but it actually failed at a point. It was recorded that the loss after the fall was up to 80% leaving the value of the said stable coin at 0.225 as at 11th of may according to coinmarketcap.

^{current price of TerraUSD:Image credit}

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The truth is stable coin are backed by underlying asset. For example if the underlying asset is Gold, you need to have more than enough gold in reserve to continually pegged the stable coin such that it doesn't lost it value in the face of unforseen circumstances.

In some cases underlying asset might need to undergo burn in a case where it value rises above the stable coin because both is suppose to be in ratio 1:1. We shouldn't be suprise when we see these things fail because human are the ones behind them.

That's why we need to check the credibility of those behind a project sometimes, they might tell you they have enough reserve to keep the coin stable and then on the long run,it fails because it all lies. Even algorithm fails.

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What are the advantages and disadvantages of stablecoins compared to traditional cryptocurrencies?

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• Advantages.

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It seems universal in nature, meaning it widely accepted for transaction as it help bridge the gap of diversity that would have occurred if you were to transact using all manner of crypto.

It has does a very good job pegging the value of asset. As an investor you can save yourself from volatility when you keep your asset in stable coin. Just as it names implies, it will stabilize the value.

It also helps in the area of liquidity, since it is widely accepted, it has the ability to be transacted with any time any day.

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• Disadvantage

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It can fail, just as seen in the case of TerraUSD. It was design to be stable but then the unexpected can happen.

Stable coin that are crypto backed can also face severe compromise in the sense that volatility can make the underlying crypto asset affect the stable coin it is pegged with.

For long term spot traders who likes to hold, keeping asset in stable coin would not make your portfolio grow or appreciate even when the market is bullish. Stable coin is design such that the value of the asset remain fixed in the face of different market conditions. You can only see little increase in some rare bullish condition which happens once in a blue moon.

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Conclusion

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Stable coin has helped minimize the risk of losing ones asset but then we also have to do a thoroughly assignment on which to subscribe to. This is because these stable coin can be compromised.

I will like to wrap it up here. I hope you got value from my little knowledge about stable coin. Like I said earlier, am still a babe when it comes to this crypto space. Feel free to share with me your thought in the comment section.

Just before I go, I would love to invest my very good friends @josepha @ruthjoe @enamul17 @harun to this contest. I hope they find it interesting. Gracias!

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Regards
@lhorgic♥️

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