"Stable coin" is a cryptocurrency that meant to be hold stable values. "For example, Tether (USDT) is a blockchain based asset meant to trade for $1 USD. Tether is a “price-stable cryptocurrency” that is “pegged” to the U.S. dollar." Stable coins can also be defined as ‘price stable cryptocurrencies’ as stated by Haseeb Qureshi." A stable coin is pegged to another stable asset, like petroleum, gold or USD. It is like a global currency without a central bank.
Most of the cryptocurrencies have high volatility. Therefore, for daily usage, it may not be so useful. For example: If I bought a car for 4 Bitcoin (BTC) today, 4x 6.661 USD = 26.644 USD, because of the high volatiliy, tomorrow BTC could be 7.000 USD and 7.000-6.661=339 USD will be my loss for per BTC. In daily usage, this can be a problem for all of us. Stable coins may solve this problem.
Types of stablecoins
Fiat collateralized
"This is a more centralized approach to stablecoins wherein a central entity holds money as collateral and issue a token that represents the money held by the entity. This is probably the most straightforward method of creating a stable coin – creating a token that represents reserves held by a central entity."
Crypto collateralized stablecoins
A stable coin that is backed by another cryptocurrency. This approach is more decentrilazed than the "fiat collateralized" but high volatility of cryptocurrency that backed the stable coin can be a problem. "This approach requires over-collateralizing which means that there is a huge rate of capital, and this sort of an approach can’t get through to the entire crypto audience and cannot satisfy the idea of a new form of money."
Non-collateralized stablecoins
Non-collateralized stablecoins are not backed by any colleteral. "Most implementations right now make use of an algorithm or a system which expands and contracts the supply of the coin depending on the price of the coin. This is based on the Quantity Theory of Money which states that ’the general price level of goods and services is directly proportional to the amount of money in circulation, or money in supply’. " We can say that it actually works like a central bank.
Now, in the cryptocurrency market, there are several problems about stable coins. Centralization, speculations and adaption are the most impotant ones.
Today, "Tether" lost almost %6 percent. "Tether" is a stable coin which has to have a stable value. There are several "fuds" about "Tether" now. What you think about it? Please feel free to comment below!
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