S4B Crypto Contest - Season 16

Hello Crypto Lovers 😍,

Data from blockchains in keynotes enables a deep dive into how stablecoins are used. I appreciate @waqarahmadshah to create such a wonderful crypto contest. I would like to invite @enamul17, @pandora2010 & @m-fdo to take part in this interesting contest.

What is a stablecoin?

A stablecoin is a cryptocurrency whose value is maintain to another asset class to achieve a stable value. For this, fiat-backed stablecoins are the most popular. The US dollar is pegged to these currencies. Tether (USDT) is an example of a stable coin.

A stablecoin behaves somewhat like fiat, but is a novel solution to crypto volatility. Stablecoins act as a way to bridge the gap between the US dollar and fiat currencies such as cryptocurrencies. There are 4 basic types of stablecoins. They are,

▪️ fiat-backed,
▪️ crypto-backed,
▪️ commodity-backed and
▪️ algorithmic.

How do stablecoins maintain their value?

Well, now we already know that stablecoins are digital assets that are meant to equal the value of fiat currencies such as the dollar, yen or euro. Customers are able to send money quickly around the world while maintaining stable prices. A stablecoin plays a key role as a platform built between the digital currency space and the traditional financial world. Algorithmic stablecoins use smart contracts to match dynamic supply in response to market demand. This provides a decentralized approach to stick maintenance.

The success of the stablecoin reflects on stabilization mechanisms, transparent governance and ability to adapt to rapid changes in the cryptocurrency market.

What are the main uses of stablecoins?

🔻Stablecoins are primarily used as a medium of exchange, a store of value, and a trading asset. Stablecoins are used to make payments on mediums of exchange. This is used to settle a wide range of trades.

• Stablecoins are used as a usd bank account in countries where people do not have easy access to US dollars and USD banking as a store of value.

• There are several purposes for which stable coins are used as a trading asset. In decentralized exchanges like coinbase they are often used as common quoted assets across all trading pairs.

How do stablecoins affect cryptocurrency market liquidity?

Stablecoins are at risk due to rapid growth, increased global usage and potential financial risk contagion. Some stablecoins have already been found critical to the liquidity of crypto-asset markets. If a stablecoin in a higher position fails, this can cause a wide range of charges for crypto asset markets. If the interconnections of crypto assets with the traditional financial system continue to rise, contagion effects may occur. Currently, the speed and cost of stablecoin transactions, as well as their redemption terms and conditions, are far below those required by practical payment methods in the real economy.

Thank you for giving a time!