Steemit Crypto Academy Contest Season 8 Week 2 - What are Stablecoins?

Good day once again to everyone, my name is oluwatimileyin and I welcome you to the season 8 of the engagement challenge.

I welcome you to my participation in the week 2 Engagement contest with the title: What are Stablecoins?

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Use your own understanding to explain what are stablecoins? And how did you manage to ensure a stable price?

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Stablecoins are the type of cryptocurrencies that are pegged to a stable asset, such as a fiat currency, or another cryptocurrency, meaning they can be pegged to a country currency and maintain stability or they can be pegged to another form of cryptocurrency to maintain their stability.

Stablecoin are coins that are developed to provide a stable price in the case of market volatility and this coins are backed by a collateral to ensures their stability.

Stablecoins can be classified into two categories which are : fiat-backed stablecoins and algorithmic stablecoins.

1. Fiat-backed stablecoins is the type of Stablecoin that is backed by a fiat currency like the US dollar, as these are the cryptocurrency format of the US dollar currency, and they hold same value in the market.

2. Algorithmic stablecoins : The Algorithmic Stablecoin are the type that use complex algorithms to maintain their stability.

How do Stablecoins Ensure a Stable Price?

Stablecoins maintain are coins that maintain a stable price by pegging their value to another asset. for instance, Stablecoin value are peg to the value of a fiat currency like the US dollar.

A good example is when a stablecoin is pegged to the US dollar, the owner will then hold an equivalent amount of US dollars in reserve to back the same amount of stablecoin. The owner will then issue the stablecoin to a blockchain, and the value of the stablecoin will remain constant as long as the US dollar remains stable.

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Why were stablecoins created and how are they useful?

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Stablecoins were created to solve the issue of volatility in the crypto market, since the value of traditional cryptocurrencies such as Bitcoin , Litecoin and other fluctuates alot, and this has make this coins to be unreliable in price value, stablecoins were then created to provide a safe coin that has a stable value and and doesn't fluctuates.

Stablecoins are useful in a lot ways.

Firstly, Stablecoin provide a stable value, which makes them useful for keeping without fear of losing of your money loosing value.

Lastly, stablecoins can also be used to trade between other financial systems and cryptocurrencies, which makes it easier for people to enter and exit the trading market.

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What are the most popular stablecoins? Which do you use more and why?

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There are lots of stablecoins in the crypto market, but the most popular ones which I am also familiar with are Tether, USD Coin, and Binance USD.

Tether USDT coin is the oldest among them and it is the most widely used stablecoin as well, it has a market cap of over $60 billion and It is backed by the US dollar and it is also used for trading on most cryptocurrency exchanges.

USDC takes the rank of the second most popular stablecoin, and it has a market cap of +$10 billion, It has a similarity same as Tether and it is also backed by the US dollar.

Binance USD is the other type of fiat-backed stablecoin , it is also pegged to the US dollar, but It is built by Binance, and it also serve the same purpose as Tether and USDT.

Among the three stablecoins listed, Tether USDT is my favorite and it's the one I'm mostly familiar with, it is popular and acceptable on every exchange, so it is easy to trade with generally and widely accepted.

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Can stablecoins lose their stability? If the answer is yes, then cite some cases with an explanation of the reasons of that

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It is important to know that the major use of stablecoins is to maintain price stability, but that doesn't mean they they are totally immune to market action, they can also lose their stability under certain circumstances.

For example, if the owner of the stablecoin is unable to maintain the peg to the asset any longer, the stablecoin is likely to drop or lose its value.

Another example is if the asset that the stablecoins is being backed on itself experiences fluctuations in value, the stablecoin's value will also decrease as the result of volatility in the asset.

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What are the advantages and disadvantages of stablecoins compared to traditional cryptocurrencies?

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• Advantages:

1. Accessibility: Stablecoins provide an easy guide for investors to enter and exit the cryptocurrency market as they can be exchanged for fiat currencies.

2. Stability: Stablecoins provide a stable value for cryptocurrency, which makes them useful for transactions and reduces the risk unlike with the traditional cryptocurrencies.

3. Decentralization: Most stablecoins are decentralized, which means they are not controlled by a central power, which makes them to be transparent and more secure.

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• Disadvantages:

1. Centralization: Some stablecoins are centralized, which means they are controlled by a central power, this makes them vulnerable to some forms of crypto manipulation.

2. Pegging Risk: The stability of stablecoins is totally dependant on the ability to maintain the peg of the asset. If the owner fails to do so, the stablecoin will begin lose its value, and this serve as risks to its users.

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Conclusion

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In conclusion, Stablecoins are the type of cryptocurrency that provide a stable price value, they can be useful for transactions, trading and provide an easy way for traders to to enter and exit the cryptocurrency market.

Stablecoins also have their own risks, and they can also lose their value under some circumstances, so it is important that users be aware of before investing.I would like to invite @yakspeace, @Lhorgic, and @jueco to participate in this contest.