Stability in Digital Currencies- Steemit Crypto Academy- S4W5- Homework Post for @awesononso

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Hello Steemians, I would love to join Prof. @awesononso to welcome each an everyone of us to the fifth week of this season. You could make your entry with this link. Here are my answers :) :

1) Explain why Stability is important in Digital currencies

Since the invention of digital currencies in 2007, there has been a rapid growth in its popularity through out the years. Investors have been lured in on various platforms and since there is no central control of these coins, these group of people (the investors) outrightly manipulate it's value. That is, compared to the fiat currencies where the central bank and the government can create policies to control their prices, these Crypto currencies are left in the hands of the users.

This has made the nature of cryptocurrencies volatile and uncertain in its price. Volatility is the ability of a digital asset to experience changes in its price rapidly or unpredictably. As much as the price of Steem can be reduced to $0.1 in a day, it can in the same way be increased by 100% in the same interval. This all depends on the emotions of traders in the market. The value of this assets is dependent on the law of demand and supply. So, a negative news from a whale on Twitter can frighten investors to sell all their assets. This in turn causes a reduction in the value of the asset. So, crypto currency is a risky gamble. You could lose your worth in just a day and also become a billionaire overtime.

So, why is stability important in Digital Currencies?

Having read all that above, you should be able to depict the reasons for stability.

Crypto currencies have their advantages, the fact that they aren't controlled or affected by a central authority. Their vices are just their nature of being volatile. This makes it inadvisable to be used as a long term means of storage. To make them a unit of storage, stable currencies were introduced to peg or clip the value of these assets to valuable assets like gold and even the US dollars. For example, Bitcoin that was converted to USDT before a serious downtrend will save the trader a whole lot of money. Also, a billionaire who wants to save his cash in bars of gold can reduce the expenses of maintaining and securing a vault by just buying stable coins which are tied to the price of gold. He can safely keep his coins safely in a hot or cold wallet. Example of this stable coins are: Tether USD (USDT) is backed by the US dolars and Tether gold (XAut) is backed by "one troy fine ounce of gold on a London Good Delivery bar" source.

2) Do you think CBDCs would be good in the future? Weigh the pros and cons in your own understanding and state your position.

For the pros of CBDC, the tokens are digitalized forms of the country's currency, this isn't just in the nature of e-banking. This is because there aren't third parties (intermediaries) in transactions between the sender and the beneficiary. The price is stable and legally backed by the government to be used as a medium of exchange in the country.

For the cons, the assets are still centralized and controlled. This means that improper management of the economy of the country would vastly affect the prices of this tokens. They would be devalued. Since the government owns the platform, government can still gain control of individual wallets (freezing wallets in the case of legal issues etc) and ledgers. This even puts the investors wealth at risk, in the case of server failures or even hackers. Finally, lots of citizens in the country are ignorant of crypto operations and this would cause low utilization of this form of exchange (recall less users would cause low liquidity on the platform) and this would affect the speed of transactions.

So, after my speculations on the future of CBDCs my opinion stands as a No, they won't be good in future. My cons are greater than my pros. Lemme explain what CBDC means, CBDC (Central Bank Digital Currencies) is a digital assets pegged to the value of the currency in a particular country. As the name implies, Central Bank Digital Currency, it is made my a central authority and this makes the asset controllable and governed by the policies of that country.

One of the main reasons Tsatoshi Nakamoto created these digital form of assets was to counter the barriers a central authority can invoke in a unit of exchange. This is a special attribute of crypto currencies and it isn't a good idea to tarnish that.

3) Explain in your own words how Rebase Tokens work. Give an illustration.

The stability of the rebase tokens are ensured through the process known as the rebase machanism. This means that, it is not backed by any real life form of asset.

As there is influx in the rate of demand for the asset, the circulating supply is then increased and when there is a reduced rate in demand, the circulating supply is then reduced. The normal law that governs this phenomenon is that, when the availability of a commodity is high, it's value or price reduces drastically and when there is scarcity of that same commodity, the price then increases. Take for instance, the price of a bunch of bananas in its season would obviously be lower than the price of the same bunch of bananas when it's out of season.

Further Illustration

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If Mr. John bought 50 rebase tokens at $100, and there is high demand which should increase the price by 100%, the amount of coins in Mr. John's wallet then increases to 100 rebase tokens and the value or wallet balance remains at $100. And if there is low demand reducing the price value by 100%, the amount of coins is reduced to 25 rebased tokens and his wallet balance remains at $100.

Note: Mr. John continues to hold the same percentage of coins in the circulating supply of the asset.

4) Go to the https://www.ampleforth.org/dashboard/. Check the necessary parameters and calculate the rebase %. What else can you find on the page

_{all screenshot for this question taken from Ampleforth.org}

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Using the formula,

Rebase % = {[(Oracle Rate - Price Target) / Price Target] x 100} / 10

We must pick out the parameters from the image above

Oracle Rate= $1.021
Price target= $1.061

Rebase% = {[(1.021-1.061)/1.061]×100}/10
= {[(-0.04)/1.061]×100}/10
= {[-0.0377]×100}/10
={-3.77}/10
= -0.377%

What else can you find on the page?

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This part of the page has the

• Next Rebase- (Countdown till the next Rebase)
• Circulating/total Supply - 113.009m/120.09m

The total Supply in the screenshot of Prof. @awesononso lesson was 111.749m/118.75m. So, this means the supply for the Ampleforth token at the moment experienced an increment and this was probably because of an increase in the demand.

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Above is the Price chart - You can change its time interval of you wish

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Above is the supply chart

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And finally, the market cap chart.

5) Trade some tokens for at least $15 worth of USDT on Binance and explain your steps.

Log in to your account on Binance. For this question I would be selling TRX.

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_{Screenshot taken from Binance}

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• From the TRX/USDT pair market page, input the amount of USDT to be purchased in the "sell TRX" section.

• Click on "sell TRX" and await confirmation. As you can see my confirmation page is on the right of the image above.

I traded the TRX for some stable coins. The transaction was quick.

6) Transfer the USDT to another wallet with the Tron Network. From the transaction, what are the pros of the stablecoin over fiat money transactions?

I transferred the USDT to my Huobi wallet, here are the steps

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_{All screenshots for this question taken from Binance}

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• From the "Spot Market", click on USDT

• From the next page, click on "Withdraw".

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• Fill in all the empty fields. Enter the recipient's wallet Address, Select the "Tron (TRC20)" option in order make the transaction on the Tron network, fill in the amount then click on "Withdraw".

• Click "confirm" on the next page. If you notice, the transaction fee was 1USDT.

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• The transfer was successful, you can click "View History" to see the details.

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• Here is the USDT in my Huobi wallet.

On doing this assignment I noticed a difference in transfer fees between the Tron and Binance network.

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If you notice, the transaction fee for the binance network is just 0.8USDT which is cheaper than that of the Tron.

Pros of stable coin over fiat currency transaction

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• Speed: The stable coin transactions are way faster than that of the fiat currency which can sometimes be even affected by poor network from the banks. I sent the tokens to my Huobi account and the confirmation and verification was done in a matter of seconds.

• Transaction fees: The transaction fees for the stable coins are cheaper compared to transactions done between banks across two different countries.

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Conclusion

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The invention of stable coins are very important to investors in the crypto currency markets. Like we learnt in the lesson by Prof. @awesononso, there are:

• Fiat-Backed Stablecoins
• Commodity-Backed Stablecoins
• Crypto-Backed Stablecoins
• Central Bank Digital Currencies (CBDCs)
• Rebase tokens

These are all stable coins. Honestly, I didn't even know about some of them before. Since these crypto currencies are known to be volatile and so unpredictable, you never know if you would wake up the next day to see your networth drop from $20,000 to $2,000, the traders or investors have another avenue to store their digital assets in stable coins.

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I so much thank you Prof. @awesononso for this wonderful lesson.