Steemit Crypto Academy Contest/S8W2- What are Stablecoins?

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What are stablecoins?

As the name implies, stablecoins are cryptocurrencies whose value is simultaneously pegged to the value of A area asset like the US Dollar or Gold to provide stability and avoid fluctuations

History can be traced back to 2014 when the first stablecoin BitUSD was created in July 2014 by Dan Larimer and Charles Hoskinson. They had the stablecoin pegged with the BTS token.

Though they are pegged to fiat currency to maintain their price stability, however, if the economy's currency fall, the stablecoin is also likely to drop because they are closely linked together.

What are the most popular stablecoins

Currently, there are over hundreds of stablecoins in the market, that people are actively using for transactions. As I said above, stablecoins are pegged to fiat money.

• Fiat-backed stablecoins are stablecoins that are directly backed by an economy's currency such as the US Dollars. They are directly equivalent in the ratio of 1:1 to dollars.

• Cryptocurrency-backed stablecoins are stablecoins that are pegged to a cryptocurrency.

• Commodity-backed stablecoins are ones that are backed by physical assets of high value such as Gold, Oil, etc. Since cryptocurrency prices are unsteady, it might reflect on the stablecoin which will result in the fluctuation of the stablecoin.

• Algorithm-backed stablecoins are stablecoins that are maintained through a program designed to control their supply. Sometimes it is also maintained by burning the coin when the price exceeds its stipulated amount.

• Tether (USDT). It is one of the oldest stablecoins you will find. Tether is pegged at the ratio of 1:1 to the US Dollar. It is known for its sotg transactions and integration with other platforms.

• Coinbase (USD Coin/USDC). Coinbase is the largest cryptocurrency exchange holder.

• Binance USD (BUSD). It's a stablecoin that is designed by a Crypto Exchange and also pegged to the USD.

• DAI.

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Can stablecoin lose their stability?

He'ss, they can lose their stability. In the case of LUNA (Terra Luna) and Terra USD (UST). The case of a cryptocurrency and a stablecoin backed by the US dollar and maintained their stable prices through a burn and mint balance. Terra USD (UST) are burned if they exceed the dollar price while LUNA is burned if the dollar price drops.

Unfortunately, they suffered losses when investors saw no reason to continue investing in UST and began to withdraw their UST investment after the reward placed on it by Anchor, a protocol that dropped from an interest of 20% to 4%. The huge drop in both the demand for UST and the value of LUNA. There was a need to burn some LUNA to maintain the price, which the owners did but eventually ran out of LUNA to burn to manage the huge drop. They lost the stability of the price and it became the end of the stablecoin.

What are the advantages and disadvantages of stablecoin compared to traditional cryptocurrency

• The major advantage that they have over traditional crypto is that they have a stable price. You can easily ascertain what the value is to the dollar that it is pegged to.

• You can easily make transactions with it anywhere in the world, especially if you don't have the physical money to pay know that the value will still be the same. Unlike the unstable price of a cryptocurrency.

• It is good for investment You can easily hold and trade with it anywhere in the country.

DISADVANTAGES

• If the economy's currency value falls. There is a high chance that the stablecoin's value will also fall.

• Stablecoin requires a third party for their transactions. They lack the anonymity that most traders and investors seek.

• Stablecoins are centralized. They are owned and controlled by a central entity. Unlike the cryptocurrency that is decentralized.

I invite @confydence, @sahmie, @lifeoflee to take part in this contest.