UNDERSTANDING STABLE COINS, WHAT ARE THEY BY @ AMJOSH9

Good day dear friends, today I would like to write about stable coins, their features, use cases and its impact on the cryptocurrency world mainly how it closes the gap between cryptocurrency which is known for its volatility of value or price and stability.

WHAT ARE STABLE COINS

Early cryptocurrency like Bitcoin faced a problem of volatility in its value or price,hence came stable coin addressing this volatility issue.
Stable coin is a class of coin created or made to maintain or keep to a certain or stable value, stable coin is mostly pinned to traditional assets like Fiat currency or commodity like gold.

There are three categories of stable coins and they include;

FIAT-COLLATERALIZED STABLE COIN:

These are stable coins backed by the fiat currency like the United States Dollar in a one ratio one (1:1) over collateralized ratio.

Examples of this is the Tether(USDT) and the USD coin(USDC)

ALGORITHMIC STABLE COIN:

These category of stable coins use algorithms, complex algorithms to control or manage the supply of it's digital tokens as a response or reaction to demand with the sole aim and purpose of stabilizing it's value.

One prominent example is Ampleforth (AMPL)

CRYPTO-COLLATERALIZED STABLE COIN:

This category of stable coins are supported or backed by cryptocurrency like Bitcoin and Ethereum, with Blockchain that employs smart contracts to help maintain stability.
A prominent example is DAI on the Ethereum Blockchain.

IMPORTANT FEATURES OF STABLE COINS

Let us look at some of the important features that has made stable coins appealing and wide spreadily accepted.

They include;

PRICE STABILITY:

The sole purpose and objective for the creation of stable coins is so as to maintain stability in it's value and it has not let down in this regard. The stability this class of coins offer has made it suitable and preferable for variety of services.

PRIVACY AND SECURITY:

Although Stable coin is the opposite of other cryptocurrency when it comes to price volatility seeing has its name implies it is stable it is still a cryptocurrency and as such stable coin is also based on the Blockchain technology, it is transparent and can be trusted and also offers a degree of security and privacy when it comes to it's transactions.

ACCESSIBILITY:

Stable coin is cryptocurrency that is available to it's users or to the public on a global scale and as such we all can enjoy the financial services it offers including to unbanked and underbanked population who do not have access to the traditional banking system.

SPEED AND EFFICIENCY:

Stable coin is suitable to serve as an alternative to the traditional cross country remittance services due to its speed and facilitation of super fast cost effective Cross country transactions.

APPLICATION AND USE CASES.

The following are some of the applications of stable coin;

CRYPTOCURRENCY TRADING:

Stable coin is often used by traders of the crypto market as a safe haven during volatile market conditions inorder to preserve value when exiting the market.

MICROPAYMENTS:

Stable coin enables low cost transaction fees when users make online purchase of digital content in other words microtransactions .

DEFI(DECENTRALIZED FINANCE):

In the defi(decentralized finance) ecosystem stable coin is used as collateral, a lending asset and it facilitates other financial services like provision of liquidity, yield farming etc.
Stable is the spinal cord or back bone of defi(decentralized finance).

FUTURE CHALLENGES AND DEVELOPMENTS

STRICT REGULATORY INSPECTIONS:

Regulatory bodies and Government are becoming increasingly strict in inspecting regulating laws guiding the operation of cryptocurrency and hence stable coin due to concerns of user protection, AML compliance and financial stability.

MARKET COMPETITION:

As a result of increasing competition in the stable coin market we should be looking forward to major innovations, constantly evolving and adapting to better serve it's users.

CENTRAL BANK DIGITAL CURRENCY (CBDC):

The digital currency project taken up by the Central Bank is gradually undermining the significance of stable coin in the digital financial market place.