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

Hello everyone.
This post is written in response to the homework given by Professor @awesononso. He taught "Stability In Digital Currencies", and he explained different types of stable coins and the importance of having them in our portfolio. So, follow me closely as we look at the questions one after the other.

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Question 1

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Explain why Stability is important in Digital currencies.

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Today, there are more than twelve thousands of cryptocurrencies. Bitcoin is the father of all cryptocurrency and after the birth of Bitcoin, many digital currency trooped in. The cryptocurrency that came after bitcoin are called Altcoins meaning alternative coins. They are alternative coins to Bitcoin.

Bitcoin and all other Altcoins have been popular over the years because of the problems they came to solve. Digital Currencies are invented to serve as alternative ways to Fiat currencies which will be used in transaction. There's no intermediary in the use of digital currency unlike Fiat money. Unlike Fiat currencies where the government of the nation has control over the currency, digital currency is decentralized. The users of digital coins have control over their asset. Also, the blockchain Technology has been one of the fast and growing technology that came to be as a result of invention of Bitcoin.

Though, bitcoin and other Altcoins are used for transactions, but one of the major problems associated with them is the fluctuation in price. If you make a payment to purchase a good with 1BTC now, in the next few minutes, if you want to buy the same good, the price may have increased, say 1.1BTC. In essence, Bitcoin and some Altcoins are not stable in price. They are very volatile, the price can increase and decrease anytime.

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_{Fig. 1: Illustration of Fluctuation in Price and Stability in price | created with imarkup app}

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With the issue of this price fluctuation, stable coins are introduced to bridge the gap. it is therefore pertinent to know that, there are coins which are called stable coins. They are stable coins because they price doesn't change. There are quite many of these digital asset whose value are constant. Examples are, USDT, TrueUSD, Binance USD.

Stability in digital currency is important. Its importance can never be overemphasized. There's what is called store value. People believe that some cryptocurrency cannot be store value because of the fluctuation in price. That's quite right because any commodity which is store value must maintain its purchasing power and should be able to be exchanged in future without losing its value. Unstable coins therefore can't be used for store value. So, stability is important for store value.

Further, stability in digital currencies is important to have a reservation. When you make a gain on your Investment and you want to save part of your profits, you will consider saving it to where it can't be devalued. There are times of lack or need when you may want to use money for something. If the fund is not saved to where the purchasing power will be maintained, you may likely not be able to use the money at the particular time.

Stability in digital currencies makes traders or Investors to keep their profits. If there's no stable coins which traders can use to safe their profits earned from trading unstable coins, they may not be able to safe their profit, and then they may incure loss at the end of the day. In essence, stability in digital currencies help traders to claim they have "asset or reservoir". The importance of stability can never be overemphasized.

It's also pertinent to know that stability in digital currencies help us or withdraw or sell without having any loss. You can easily withdraw your asset in stable coins without having to worry of losing. This is one of the importance of having your asset stable coins. Also, with the use of stable coins, one can make quick position when trading. These and many more are why stability is very important.

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Question 2

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

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CBDCs means Central Bank Digital Currencies. These are digital currencies which are the representation of the nation's currency. The value of a CBDC will be equivalent to the the value of the nation's currency. For example, 1 naira will be equivalent to 1CBDC of Nigeria.

Since CBDC is a digital currency issue by the central bank of the nation, it will be centralized. The government of the nation will be in control of that digital currency. Although CBDCs have not been fully implemented, but the government of the nations are beginning to create digital coins which will have the same value as the currency of the nation.

Now, let's look at pros and cons of this digital currency.

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Pros of CBDCs

• It is legalized.

Since it is the digital currency issued by the central bank of the nation and supported by the government, then it will be backed by the law and government policies. This means, it will be generally accepted in the nation where it's issued.

• Security

There's no need to take along huge fund when you want to purchase goods worth of millions dollars. One can do the transaction with a tip of finger from his wallet. So, by that, the issue of stealing or robbery will be greatly reduced. You will only be rubbed when anyone has access to your private keys or password to your wallet.

• No need to have accounts with Bank

You will not need to have any account with any commercial bank with the use of CBDC. All you need is to create account online and have your wallet. With this, the unbanked will be included.

• It may lead to adoption of cryptocurrency

If citizens enjoys the use of CBDC and see the little enjoyment it presents, they may end up adopting cryptocurrency where they will total control over their assets.

Cons of CBDCs

• It's centralized system

One of the major disadvantage of this is that, it's controlled by the government of the nation. This means the citizens don't have control over their assets

• Government Policies

Government policies may lead to paying more transactions fee, especially if you want to send large amount of money and since they are the one controlling it, you don't have choice than to pay.

• It may not be adopted by uneducated People

Citizens who don't have skill in using digital devices may not adopt the use of CBDC. Because they may not know how to operate the wallet, confirm transaction or send money.

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Now, if we weigh the pros and cons of CBDC, to me me, I will say it would be good in the future. Some of the pros are very crucial, and they outweigh the cons. Let me try to explain properly. Legalization of CBDC will make all citizens to adopt it and use it as a medium of exchange.

Remember I said one of the cons is that, uneducated citizens, people who are not skilled in using digital devices may not adopt it. Actually, they can be taught and know how to use it. Also, one of the pros is that, there will be security with the use of CBDC. Citizens will not have to carry money along when they want to go and buy goods.

Although CBDC may be centralized, but its centralization may be used to monitor all form malicious behavior and dupeous activities on the network. Also, its adoption may lead to adopting cryptocurrencies by the citizens. So, even when they are using CBDC, they will still be using their country's digital currency.

Another important factor why CBDC will be good in the future is that, using it will bring about fast transaction. Unlike the use of fiat money where you will be collecting receipt and papers when you make a payment, you only need to view transaction history on your wallet. Then, you can make transaction anytime on your phone at anytime.

With these and many more, I believe CBDC would be good in future.

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Question 3

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

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Rebase token is a type of token in which the circulating supply changes due to the variation or fluctuation in its price. It is also called elastic supply token as a result of the fluctuation of price which makes the circulating supply to keep adjusting itself automatically.

Rebase token like stablecoins are similar because both have are always targeting a price. However, rebase token is different from stablecoins in that, the supply in rebase token is elastic in nature. The supply keeps adjusting itself as the price changes based on the law of demand and supply.

Now how does rebase token work?
Rebase token, like I said earlier, has a Target price, just as stable tokens do. To understand how it works, we will look at the supply and demand in relation to price. From the basic elementary economics, we know that when demand increases, the price will definitely skyrocket, that's the price of the commodity will increase. And also when the producers of commodity increase the supply of a commodity, the price will fall.

For rebase token, increase in price will increase the supply. It is the increase in supply that will cause the price of the token to go back to the target price or very close to the target price. Remember the law of supply says that, as the supply increases, price will fall. So the instant rise in price will go back to the target price as a result of the rule of supply.

In the same way, when the demand decreases, the price will fall. Then rebase token then adjust the supply by reducing the amount of token in circulation which will cause the price to go back to the target price. As we know , the rule of supply is, decrease in supply will increase the price.

Now, to understand this better. Let's say the target price of a rebase token is $2. If the price rises to say $2.2. Then rebase token will automatically adjust itself by increasing the circulating supply (Increase in supply decreases the price) to bring back the price to intended target price of $2. Also, if the price falls to say $1.8. The rebase token will contract the supply (Decrease in supply increases price) so as to bring the price back to Target price of $2.
See the screenshot below.

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_{Fig. 2: Rebase Illustration | created with imarkup app}

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Question 4

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

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In this part of the the question, I am going to enter the ampleforth.org and check for the parameters needed to calculate the rebase percentage.
By clicking on the link im the question, you will be taken to the homepage of the ampleforth.

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_{Fig. 3: Ampleforth Website showing target price and | ampleforth.org}

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Now, according to the screenshot, we can see oracle rate, price target, circulating/total supply and next rebase.
Oracle rate = $1.003
Price target = $1.061
Next rebase is 11h:4m:48s
Circulating /total supply is 112.395M / 119.44M

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Now let's calculate the rebase %.
To calculate rebase percentage, the formula for calculating the rebase percentage is given below:

Rebase % = {[(Oracle Rate - Price Target) / Price Target] x 100} / 10
From the screenshot above,
Oracle rate = $1.003
Price target = $1.061

Rebase % = {[(1.003 - 1.061) / 1.061] x 100} / 10
= {[-0.058 / 1.061] x 100} / 10
= { -0.0547× 100} / 10
= (-5.47) / 10
= -0.547 %

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Now if you notice well, you would realize that i picked the parameters from one of the features of the website, which is dashboard. There are other features at the top of the page. Features such as learn, trade, stake, community and governance

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When you click on learn section, some features will pop up. Features such as how it works, road map, Technology etc . These features will let know more about the ampleforth.

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_{Fig. 4 : Learn Section | ampleforth.org}

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Also, in the trade section. There are kinds of the supporting exchanges such as uniswap, kucoin, FTX, gate etc. See the screenshot below.

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_{Fig. 5: Trade Section | ampleforth.org}

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The stake section is also included in the features of the ampleforth.

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_{Fig. 6: Stake Section | ampleforth.org}

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Also, the community section. It's a feature where the participants can associates. See the screenshot below.

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_{Fig. 7: Community Section | ampleforth.org}

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The governance section is where you see how it works, the forth token and resources**.

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_{Fig. 8: Governance Section | ampleforth.org}

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Question 5

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Trade some tokens for at least $15 worth of USDT on Binance and explain your steps. (Give necessary Screenshots of the transaction).

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In this part of the question, I am going to be using my verified binance to buy USDT. I'm going to be buying USDT with my bitcoin asset. Below is the screenshot showing my BTC asset in my wallet.

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_{Fig. 9: My BTC asset in my wallet | binance exchange app}

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Now, the next thing to do is to go to trade section under spot. On getting to trade section, I am going to search for BTCUSDT, since I want to buy USDT with my BTC. I have $29.73 worth of BTC and I am going to use all to purchase USDT. I am selecting the market because I'm interested in buying at the current price in the market. After filling all the details, I clicked on sell.

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_{Fig. 10: Buying USDT with BTC | binance exchange app}

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On clicking on sell, the order filled immediately as it was bought on market price. The order details of the transaction is shown in the screenshot below.

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_{Fig. 11: Order Details of USDT bought | binance exchange app}

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As seen in the screenshot, I have successfully purchased USDT. I got 29.17 USDT. About 0.6USDT has been deducted as the transaction fee.

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Question 6

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

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In this part of the question, i will be transferring my USDT asset from binance to Kucoin. I have 29.45USDT in my binance wallet. See the screenshot below.

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_{Fig. 12: My USDT asset in my binance wallet | binance exchange app}

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Now, since I want to transfer this USDT to Kucoin, I will need to go and copy USDT Tron network wallet from Kucoin first. Now, on the wallet section of the Kucoin, I clicked on deposit. And since it requested that i use Tron network, I will click on Tron network and copy the wallet address.

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_{Fig. 13: Copying USDT wallet from Kucoin | Kucoin exchange app}

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Upon copying the wallet from the Kucoin app, I will go back to my binance app and go to the wallet section and click on USDT asset and then click on withdraw.

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_{Fig. 14: Clicking on Withdrawal | Binance exchange app}

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Then upon clicking on withdrawal, a page will be shown for you. I pasted the address copied from Kucoin, wrote the amount I wanted to transfer and selected the network, Tron network** I'm withdrawing all my 29.4588 USDT. The gas fee is 1USDT. Which means I'm going to get 28.4588USDT into my Kucoin wallet.

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_{Fig. 15: Withdrawing my USDT from binance to Kucoin | Binance exchange app}

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Then, filling all the details, I clicked withdraw. Then, a page will be shown that the request has been submitted.

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_{Fig. 16: Request Submitted Page | Binance exchange app}

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After some minutes, I received 28.588 USDT in my Kucoin. See the screenshot below.

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_{Fig. 17: Details of USDT received in my Kucoin | Kucoin exchange app_}

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Pros of Stablecoins over Fiat Money Transactions

• It easy and fast

We can see from the process of transaction of USDT (stablecoins) , it is very easy. All I needed is to copy the wallet address of where i wanted to transfer to and send it to it. It took just 1 or 2 minutes before the transaction entered into the wallet I sent it to.

• Stablecoins are not under control of the government.

Unlike Fiat money where the government have control and can limit the amount you can withdraw or transfer, stablecoins are not under the government.

• Stablecoins have a Target price

The price of the USDT I transferred from binance is the Sam will the one i received I my Kucoin , only that the transactions or gas fee was deducted.

• The transaction is very secure in stablecoins

As we can see, there's no trace of the person who sent the money. In essence, the sender is kept hidden.

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Conclusion

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Stablecoins have been very useful because their price doesn't fluctuate. Many traders use stablecoins to save the profits they make from trading volatility coins. In essence, stablecoins are used as store value as they don't look their purchasing power. It is therefore pertinent that traders habe these coins on their portfolio, so they may withdraw or transfer at anytime they need their fund without having to sell at a loss.

Thanks to Professor @awesononso for this great teaching. I have learnt more than enough. I look forward to your next lecture. Till then, stay safe.

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