Photo by CoinWire Japan on Unsplash

What is Stablecoin (Altcoin)

• Stablecoin is a type of cryptocurrency where it’s value pegged to a certain asset such as fiat currency, digital currency (crypto), commodities or algorithmic things.
• So stablecoin simply mean a crypto that follow the value of paper money, other crypto, precious metal or other type of commodities and computer code in crypto.
• Some of the most well known stablecoin is Tether (USDT) and USD Coin (USDC).
• There are 4 type of stablecoin which is Fiat Collateralize Stablecoin, Crypto Collateralize Stablecoin, Commodities Collateralize Stablecoin and Algorithmic Stablecoin.
• One of the main thing that stablecoin bring in the crypto sphere is it act as a hedge on crypto market volatility
• You might realize that crypto market is quite volatile (the price move to much), so stablecoin basically help you to avoid this kind of thing especially when you try to store value in the crypto blockchain.
• The main way that a stablecoin company use to make sure that the stablecoin is peg to a certain thing is by maintaining a pool of reserve asset as collateral or use an algorithmic formula to control it’s value
• The basic principles is basically if the value of things that a stablecoin is pegged into go down, they will increase the stablecoin supply to reduce it’s value and vise versa.
• As always not every crypto is perfect so here is some of it’s problems. Some of the problem is counter party risk, centralization risk and algorithm manipulation
• So here some explaination for this problem. Counter party risk happen because people give to much trust to the third party to keep stablecoin stable an might cause a stablecoin becoming partially backed or pegged by a certain thing. If bank run happen, you lose money, as simple as that.
• For centralization risk, stablecoin user run into the risk for they account to be ban, block or access by unauthorized party and for algorithm manipulation, well let’s just say algorithm can be manipulated by third party especially the distributor of that stablecoin and sometimes the algorithm itself fail to keep the stablecoin stable.
• Did you guys realize the pattern here for the real problem, if your answer is lack of regulations, then you’re absolutely right. If your watch closely, regulations is the only thing that can solve all of this problem because with regulations stablecoin company basically is force to make sure that they do not lose investor or customer money or they might get a hefty fine from the regulator.
• It’s also not shocking that most of the stablecoin fail to do it jobs as early as the early stage. One of the most famous examples is TerraUSD (USTC) that lose most of it’s value in May 2022.
• Some of you might say just ban stablecoin completely to solve most of it’s problems because a problem will not exist if the things that cause it also does not exist. Well it’s not that easy, regulations in crypto sphere is still in its early stage and in my opinion banning stablecoin as a whole might be a bad idea because it’s still can give a lot of value in the crypto sphere just based on its use case.

Referral and Affiliates Link

-NordVPN

Offer great way for us to use the internet in a safer and better ways. Click here if you guys are interested in using NordVPN

-Surfshark

Provide 3 different services involving protecting your privacy and data. They also provide services to protect your device from malware. Click Surfshark VPN, Incogni, or Surfshark Antivirus if your guys are interested in using their service.

-CoinLedger

The Number 1 Crypto Tax Platform for trader and investor. Click here if you guys are interested in CoinLedger service and use my Promocode CRYPTOTAX10.

(DISCLOSURE: THIS ARTICLE CONTAIN AFFILIATE LINKS AND REFFERAL LINKS THAT WILL DIRECT YOU TO A CERTAIN PRODUCT)