The R Roundup Presents: STABLECOINS 101 FOR DUMMIES #5
The conversation of stablecoins continues in many different dialects however there may be a small group of people who may not understand what stablecoins are and effectively leave themselves in the dark.
In this issue of our famous “For Dummies” series, we look at one of the lingering thunderstorms across the crypto economy….Stablecoins.
What Are Stablecoins? 🥴
Now it’s important to remember that in traditional markets like forex, you can have the assets you are trading be backed by many different currency pairs like USD/CAD EUR/JPY USD/CHF and you are trading those currencies against each other vice versa.
This is important to remember as a way to understand the role of stablecoins in the market as essentially stablecoins are cryptocurrencies that are tokenised to be pegged against stable fiat currencies like $USD or even in some cases commodities.
So you might notice when you log onto binance and look for your favourite shitcoin that its pair might look something like this XXX/USDT which is technically the coin being compared in terms of price value to USDT which is one of the largest stablecoins.
But we will get into Tether later…👀
How Can I Use Stablecoins?✍️
There are many uses for stablecoins, but the main one which you might notice them used for is as a hedge against volatility due to the simple fact that they don’t move at price (as much).
As you can see, the stability of price has also led to an extra utility for stablecoins as you can also earn yield by lending or staking through decentralised finance protocols.
Lastly, the stability of price could also be seen as an explanation for users taking a liking to stablecoins for means of transfer across chains. From sending $USDT on Binance to Kucoin to Metamask, you don’t have to worry about the price changing as you move your precious profits.
Examples Of Stablecoins 👇
Here are some stablecoins which you might recognise that are “pegged” against the U.S Dollar.
Where Does The Problem Begin?😲
Looking at Coinbase’s description of the issuing of stablecoins…
“The USDC stablecoin, for example, is backed by dollar-denominated assets of at least equal fair value to the USDC in circulation in segregated accounts with the US regulated financial institutions. Such accounts are attested to (i.e. verified publicly) by an independent accounting firm.”
Now the conversation of being audited to verify that these dollar-backed assets are actually “dollar-backed.” We have also seen speculations of Tether printing supply in confluence with Bitcoin falling to support price.
With further talk of CBDCs (central bank digital currencies), further scrutiny has been posed to stablecoins with the whether the need for them persists.
An interesting conversation is one of the stablecoins as many misconceptions can be made about how they come into circulation, how they work and so forth.
A bit of advice would be not restricting yourself to one stablecoin and exposing to a diverse number as you can never totally be sure. $UST for example is a stablecoin that is pegged against $LUNA initiating burn processes which is an interesting method of tokenomics.
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As a reminder this is not a trading signal, it is an opinion and each trader/investor should know and understand the risks attached with trading. At no point should this be regarded as financial advice
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