Stablecoins
STABLECOINS
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Content by : Peter Bergstrom
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" Stablecoins are cryptocurrencies that attempt to peg their market value to some external reference like the U.S. dollar or to the price of a commodity such as gold.
Stablecoins pursue price stability by maintaining reserve assets as collateral or through algorithmic formulas that are supposed to control supply.
Originally, stablecoins were primarily used to buy other cryptocurrencies, like Bitcoin, because many cryptocurrency exchanges didn’t have access to traditional banking. They are more useful than country-issued currencies because you can use them 24 hours a day, seven days a week, anywhere in the world – without relying on banks.
Money transfers take seconds to complete.
Another useful feature of stablecoins is that they can work with so-called smart contracts on blockchains, which, unlike conventional contracts, require no legal authority to be executed. The code in the software automatically dictates the terms of the agreement and how and when money will be transferred.
This makes stablecoins programmable in ways that dollars can’t be.
Smart contracts have given rise to the use of stablecoins not only in seamless trading but also lending, payments, insurance, prediction markets and decentralized autonomous organizations – businesses that operate with limited human intervention.
Collectively, these software-based financial services are known as decentralized finance, or DeFi.
Proponents hold that moving money via stablecoins is faster, cheaper and easier to integrate into software compared with fiat currency.
Others say the lack of regulation creates big risks for the financial system. In a recent paper, economists Gary B Gorton and Jeffery Zhang draw an analogy to the middle of the 19th-century era when banks issued their own private currencies.
They say stable-coins could lead to the same problems observed in that era, when there were frequent runs because people couldn’t agree on the value of privately issued currencies.
A reminder of those risks came in May 2022 as a so-called algorithmic stablecoin known as TerraUSD, or UST, plunged in value. Algorithmic stablecoins use a complex system of burning, or creating tokens for profit, to maintain their peg.
As a result of these issues, regulators have taken greater interest in them recently.
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Source: https://www.linkedin.com/in/peterbergstrom/
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Peter Bergstrom
CEO Founder BitBlock. 25 yrs Game Publishing + 8 yrs Blockchain | Cryptocurrency | DeFi | Tokenization | TGEs (ICO+IEO+IDO) | Play & Earn | NFTs --> The GameFi Guru | 50k+ followers
Stockholm, Stockholm County, Sweden
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