What About Stablecoins?

Looking back to my earliest days in the cryptoverse, there's this one idea or concept that has always been present when I read about the issues in cryptocurrency. And even now, it is still a leading issue when it comes to a regular cryptocurrency. And it just makes you think that more than a limitation, it may already be considered as an attribute of a cryptocurrency, and that idea? "Volatility".

And wow, I didn't know that volatility has a very complicated definition. I just know it as the rise and fall of an asset's value. And that's the definition we are sticking with. Cryptocurrencies are volatile in their values and they change in an instant. Let's take BCH for example. One moment, you can buy an average mountain bike for 1 BCH but in the next hour or so, you can only afford the same bike's tire. Or who knows, maybe you can buy a lambo with a single BCH. That's how unpredictable and volatile a cryptocurrency is.

And that's one of the reasons why many people are still skeptical of the whole cryptocurrency system. Normally, a person wouldn't want to invest in something that's obviously a gamble and when the outcome isn't sure. But weird enough, people are readily spending lots of money on gambling. Yep, people are weird.

Anyway, as they say, if there's a will, there's a way, and if volatility is the problem, cryptoverse has an answer to that, and the solution is known as Stablecoin.

What is a Stablecoin?

A Stablecoin is a token that is made to mimic the value of a fiat currency or commodity. Its value is also pegged to the fiat currency or commodity it is mimicking. By pegged, it means that its value is tied to the value of the fiat currency or at least it is expected to be of equal value.

Others also refer to Stablecoins as utility tokens while some refer to them as another classification of cryptocurrency.

And a token is different from a cryptocurrency coin because it doesn't have a native blockchain and it's only built on top of existing blockchain technology.

Usually, a Stablecoin is backed and funded by a private company.

Usage of Stablecoin

In my opinion, Stablecoins are made with the purpose of translating physical money into a fully digital form, the entirety and the whole essence of it.

One can use a Stablecoin as real money too because most merchants in the cryptoverse recognize Stablecoins with real-money values. I personally think that they are also the closest we can get to digital money because they are the least volatile assets in the cryptoverse. Don't get me wrong, I love myself some BCH and I love that more and more merchants are opening their doors and registers to accept BCH as legal tender too. But if the market's too volatile, it would somehow go full circle and beat the purpose of having cryptocurrency coins as legal tender.

The ultimate goal of being accepted as the universal legal tender is the constant movement of the asset. It should like be the blood that runs through the veins of the body and make the whole economic model work. But with the volatility of the market, most are forced to just save the assets they have instead of making them circulate. Because you know, who wants to buy a cup of coffee worth 1 BCH instead of waiting for its value to fluctuate and maybe afford a whole bunch of a coffee franchise.

Pros

Stablecoins are by far the safest bet you can find in terms of investment in the cryptoverse. You can stock up on a bunch of them and you can leave them for a while and when you get back to them, they will roughly have the same value as when you started. You will rarely suffer huge losses from them because, again, a Stablecoin's value will always be the same as the value of the real-life asset in which they are pegged.

Since Stablecoins are tokens, they are usually available in multiple blockchains and platforms. You don't have to stay in just a particular blockchain just to stock up on a particular Stablecoin. And that being said, you can virtually use them and spend them anywhere in the cryptoverse.

You can also use your Stablecoins to earn passive income. There are a lot of exchanges that offer high yields on APY when you hold Stablecoins in their wallets.

They are also good ways to capitalize on profit when it comes to trading.

Cons

Of course, just like any asset in the cryptoverse, Stablecoins come with disadvantages and risks too.

Any Stablecoin can lose its value when the company backing it goes bankrupt. Not only that, a Stablecoin's value can drop to zero in an instant if the people behind it run away with all their profit.

In my experience, the fees involved in the transactions of Stablecoins are also pretty high. And that, for me, is quite a deal-breaker. Nothing really beats BCH when it comes to low transaction fees and smooth sailing.

And since Stablecoins can be viewed as the anonymous dollar, then they are prone to abuse by some shady people to carry out illegal schemes such as money laundering and other shady activities. Anyway, it's like that with anything too. The good always comes with a bad side in the hands of evil.

Examples

You might have seen and even bought some of these Stablecoins before even if you are a newbie in the cryptoverse.

Tether (USDT) is one of the leading Stablecoins out there despite the issues and lawsuits thrown at it. Tether is a Stablecoin by the Hong Kong company Tether Limited. Tether is pegged to the US Dollar.

USD Coin or USDC is another Stablecoin pegged to the US Dollar. This is a Stablecoin by a consortium called Centre. A consortium is a group of entities that share a common goal that keeps them working together. These entities may be individuals, companies, or even governments. It was founded by a company called Circle.

DAI is a Stablecoin made by MakerDAO, a decentralized autonomous organization. This Stablecoin is also trying to be on par with the US dollar as close as possible.

Conclusion

I think that it is just important to remember that even though Stablecoins are the least volatile asset in the cryptoverse, they should still be treated and dealt with with the utmost care and precaution because, at the end of the day, they are still digital assets that may lose their value and become illiquid.

But as far as cryptocurrency is concerned, Stablecoins are the closest we can get to digital money with real characteristics like the fiat currencies. They are surely something that tries to bring us the best of both worlds.

Hi!

And that's another lesson in cryptocurrency. I just read about it today. I have always known about their existence but it's quite good to formally focus on what Stablecoins really are.

I hope you're doing well. All your comments, suggestions, and even violent reactions are welcome here. Just drop me a message in the comment section or in any of my messaging platforms available.

That's it from me and until we read again...

Cheers!!!

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Series    : All About Crypto
Title     : What About Stablecoins?
Published : 27-Apr-2022
Author :  © RB

References:

What Is Stablecoin? (2022, January 27). Investopedia. https://www.investopedia.com/terms/s/stablecoin.asp

NextAdvisor. (2022, April 19). How Stablecoins Can Help Crypto Investors, and Why the U.S. Government Has Taken Notice. NextAdvisor with TIME. Retrieved April 23, 2022, from https://time.com/nextadvisor/investing/cryptocurrency/what-are-stablecoins/

Reuters. (2021, June 14). Bitcoin tops $40,000 after Musk says Tesla could use it again. The Economic Times. Retrieved April 23, 2022, from https://economictimes.indiatimes.com/markets/cryptocurrency/bitcoin-climbs-above-40000-after-musk-says-tesla-could-use-it-again/articleshow/83512463.cms

Wikipedia contributors. (2022, April 19). Tether (cryptocurrency). Wikipedia. Retrieved April 23, 2022, from https://en.wikipedia.org/wiki/Tether_(cryptocurrency)

Wikipedia contributors. (2022b, April 19). USD Coin. Wikipedia. Retrieved April 23, 2022, from https://en.wikipedia.org/wiki/USD_Coin