A Detailed Dive Into Stablecoins #005

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Hello Great Minds,

It is a wonderful opportunity to come before this great community today to discuss on an issue of great importance.

I trust you are all doing perfectly fine and are enjoying your activities in the community.

I come before you all with a humble heart and I am happy to come before you all.

Today, we shall be continuing our discussion on Fiat collateralized stablecoin and we shall be examining some of it's challenges as we were unable to conclude the discussion the last time,
Please stay tuned

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CHALLENGES OF FIAT COLLATERALIZED STABLECOIN

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As discussed earlier there are challenges being faced with the use of fiat collateralized stablecoin.

We have discussed some and we shall continue them today and they are explained below

• MARKET ADOPTION:

The success of fiat collateralized stablecoin is greatly dependent on its adoption rate.

Inorder to gain acceptance, they have to compete with the traditional banking and payment systems.

Without this competition, it will become very difficult for it to be accepted and it will greatly affect it's success.

• COLLATERAL RISK:

The value of collateral (fiat currency) tend to drop when there are extreme market volatility and this leads to under-collateralization.

And this often occurs in situations where the stablecoin supply cannot be backed by the reserve assets, and this is as a result of insufficient reserve asset.

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EXAMPLES OF FIAT COLLATERALIZED STABLECOIN

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There are different examples of fiat collateralized stablecoin and some of them are

• TETHER (USDT):

One of the most fiat-collateralized stablecoin is tether usdt.

This stablecoin claims to be backed 1:1 by the US dollars and has faced much controversy and popularity because of it's work in the crypto ecosystem.

• USD COIN (USDC):

USDC is another example of fiat collateralized stablecoin that is being issued by regulated financial institution, where each usdc is being represented by one US dollar held in reserve.

It makes emphasis on transparency and regulatory compliance.

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CONCLUSION

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We have examined some dis-advantages of fiat-collateralized stablecoin and also some examples of fiat-collateralized stablecoin.

In our next discussion, we shall learn more about stablecoins, please stay tuned.