Community Trust ScoreVerified
Do Kwon: Algorithmic stable coins are fast becoming the norm – protocol-issued dollars are coming to every blockchain. Detractors cannot see – currencies are ultimately backed by the economies that use them, and the future is clearly opting to use decentralized and self-sovereign stable coin.
This becomes easier to understand. If you imagine fiat pegs are transient for stable coins. Think about it.
Community Reaction: The problem with Algo stable coins is the risk. When holding Algo stable coin you are bearing the full risk as holding the backing token. If the backing token fails, the stable coin will fail too. There is no perfect stable coin.
An interesting explanation for why stable coins will affect the everyday person?
Burst: Stablecoins will affect the everyday person because: 1. Collapsing economies need a life raft 2. Holding US Dollars is a guaranteed loss this year of 6-15% 3. Crypto can earn you 5-20% yield on stable coins, which beats most asset classes.
Why use a stablecoin instead of Bticoin? Right now, cryptocurrencies are not really used as “currencies.” Rather, they are assets you buy and hold. Stable coins change that for 3 reasons: 1. Taxes 2. Volatility 3. Fees.
Taxes: Bitcoin is classified as property. So, every time you use it to buy something, you’re triggering capital gains taxes as if you just sold a stock or piece of property.
Volatility: If you own a barbershop, you don’t want to accept BTC because the price can skyrocket or plummet the next day. It’s hard to run a business if you accept a currency that can crash or spike overnight.
Fees: Both Bitcoin and Ethereum have high transaction fees (often $10+ per transaction).
Stable coins solve these problems: 1. No capital gains taxes for transactions 2. Prices stable at $1 always 3. Cheap to transact.
So, what is a stable coin? A stable coin is a digital currency created with the intent of holding a stable value. They maintain stability in two ways: 1. Backing its value with stable assets. 2. Algorithmic management.
Asset-Backed: Asset-Backed – These stable coins back their value with other stable assets (which you can exchange for): • Fiat currencies like USD • Cryptocurrencies like BTC • Commodities like gold.
Algorithmic Management: These stable coins rely on complex algorithms to keep their prices stable. When the price of the stable coin goes over the peg (ex: 1 USD), they buy assets. When it goes below, they sell assets.
Stable coins are not perfect. Some asset-backed have a questionable amount of assets *cough* Tether *cough*. And, algorithmic managed can lose their peg if too many people try to sell at once.
But, if you squint, you can see that stable coins are designed for our increasingly global economy: 1. You only need 1 crypto wallet vs multiple international bank accounts. 2. It is run on the blockchain by code not a centralized bank.
Stable coins offer the convenience, privacy, & security of crypto, while offering the stability and trust of fiat money.
