These types of coins were created not long back and just from their name they were meant to stabilize the crypto market. Everybody wants the freedom that is found in the crypto market but without stable coins only day traders would have benefited from the volatility as they would make profits.
With stable coins anyone who wants the freedom of using their money anytime they want can now do so through stable coins without losing through values of their portfolios through fluctuations.
Stable coins has ‘Advantages’ which we are going to look at:
Stability - These coins are stable in value and not volatile, the amount of coins in circulation is backed by certain assets e.g. fiat money, commodities or other crypto so their value will remain constant overtime and you portfolio will be safe if you have more of these coins.
Unrestricted – these coins are decentralized and there is no government interference, unlike in banks were you are restricted on number of transactions you can make and also you are given the maximum amount per single day of which on stable coins there is nothing like that as you are free to do whatever you want and whenever you want and even if you transact more it very cheap as compared to our current banking system.
But how ever these coins have their own ‘Disadvantages’ which we need to look at as we have to check both sides.
Centralization – these coins are not fully decentralized like others because they have business entities behind them which oversee the control and movement of stable coins which makes it partly centralized.
Instead of the supply and demand to determine the price and value, these entities determine the price and value of each coin and the assets backing. So it is more like fiat money just digitalized, the only difference is that the government is not the once in control but the private sector.
Dependent on market forces – their future is depended on the market forces since they are backed with commodities and fiat currencies this also mean if these assets which back stable coins are bleeding and losing value then the stable coins are vulnerable to losing value as well since they are pegged at certain prices e.g. $1 represent 1 stable coin.
So it’s very hard to put all our trust in them as we don’t know for how long they will remain stable as the assets which back them are government controlled and they are easily affected by government economic policies e.g. Interest rate decision.
For the mean time we can enjoy the mean time we can enjoy their stability but no one actually knows until when.