Steemit Crypto Academy Contest / S8W2 - What are Stablecoins?

What is a stable coin? How does it manage to keep the prices stable?

There are various types of cryptocurrency is the market one such type of cryptocurrency is stablecoin. As the name suggest stable coins price does not fluctuate very much. As we know cryptocurrency prices are very much volatile but that's not the case with stable coin. Although the price's fluctuate but the fluctuation is negligible when compared to the price of the stable coin.

So basically you can say that the stable coins are the fiat currency of the crypto market. The stable currency is used to buy/sell something the same way we use fiat currency to buy/sell stuff. And one can also sell his crypto and get convert it into stable coin so that he is not affected hy the market fluctuations.

As we know by now that stable coins have a fixed price and does not fluctuate much so the question is how is its price stable and why doesn't it fluctuate what are various ways have a stable coin maintained its price.
The price of a stablecoin remains relatively constant because of the fact that it is designed in such a way and it is to be pegged to a specific asset, such as the US dollar, and maintain a stable value relative to that asset. There are various types of stable coins such as fiat-backed commodity-based algorithm-based e.t.c

Fiat-backed stablecoins are backed by reserves of the corresponding fiat currency, such as the US dollar. The issuer of the stablecoin holds a reserve of dollars equal to the number of stablecoins in circulation. When someone buys stablecoins, the issuer holds the equivalent amount of dollars in reserve, and when someone sells stablecoins, the issuer buys them back with the corresponding amount of dollars from the reserve. This process helps maintain the stability of the stablecoin's price relative to the US dollar.

Algorithmic stablecoins use complex algorithms and smart contracts to maintain a stable value. For example, a stablecoin might use an algorithm to adjust the supply of the stablecoin based on changes in demand, ensuring that the stablecoin remains stable in value relative to the asset it is pegged to.

Commodity-backed stablecoins are backed by a physical commodity such as gold, and their value is maintained by holding reserves of the corresponding commodity. The value of the stablecoin remains constant relative to the value of the underlying commodity.

Why were stablecoins created and how are they useful?

As I mentioned earlier stable coins does not fluctuate so there lies the answer. These were created so that a trader does not have to always use his fiat currency in order to buy or sell cryptocurrencies. And let's not forget the charges that we incur while buying or selling a cryptocurrency using a fiat currency. So in order to tackle with these issues fiat currency is replaced by stable coins in the cryptocurrency world. Stablecoin's were invented to minimize the risk of volatility when buying or selling cryptocurrencies.

Let's assume a case where a trader X buys or sells crypto using fiat currency. Why using stable coins to buy or sell cryptocurrencies. Every time trader X wants to buy or sell he has to go to a hectic bank process in order to transfer money to buy or sell cryptocurrency. The bank may also incur some charges while doing so and so will the exchange. On the other hand the trailer why who uses stable coins can instantly buy or sell cryptocurrencies using the stable coin and he does not always have to bear the fees from the centralized banks.

Here also get some issues if the bank is going through some technical difficulty or transaction declines or something else misliness happens. It's not the case with trader Y, so trader why is at a better place than trader X. These are all the reasons why the cryptocurrency needs a stable coin and this is also the reason why stable coins were invented in the first place.

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

No wonder that there are various stable coins available in the market right now. The big players include TETHER or so called USDT,USDC,DAI, BUSD or so called binance USD or TUSD or so called true USD

TETHER or USDT is the most used stable coin in the world. Market cap of over 60 billion US dollars. This stable coin is pegged to US DOLLAR that is every USD that circulates in the market is backed by a real US dollar. USDC it's on the same principle and it's market capitalization is almost 12 billion US dollars.

DAI is also a stable coin it's not pegged to US dollar but it's packed to tether or usdt. And as we know a USDT is pegged to a real US dollar, indirectly we can say DAI is pegged to US dollar. BUSD is also pegged US dollar. This is a stable coin of binance.

If I am talking about myself I use USDT and BUSD the most. As the prices does not fluctuate too much it's in good purchase. And they are both packed to a real US dollar so there is no reason to doubt it.

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

Older the main purpose of stable coins is to hold a constant value that does not change but that's not always the case. Stable coins can lose value and can trade below its pegged level. In post didn't have been various cases of stable coins losing its stable price let's take a look at some examples and understand why it happened and what was done that made things happen. The worst of all the cases is TerraUSD.

This is a crypto crash or a stable coin crash that made millions of people's bankrupt overnight. This stable coin was backed by a native token called LUNA. So it was not basically pegged to a dollar. Luna was trading at more than $100 and something fishy happened that pressure the price of Luna to peanuts and same happened with the terraUSD. This was worst of all the crashes that Market had ever seen.

TETHER or USDT also in October 2018 this happened because of lack of transparency and claims were made that the company does not hold all the assets as they claimed. In order to save themselves people started selling tether that led to the crash. Same happened with the basis BAS and same happened to the iron finance but the latest of them is terraUSD.

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

Everything that comes with advantages carries some disadvantages as well. Whether we agree or not stable coins have their advantages and disadvantages as well so we are going to discuss both the advantages and disadvantages of the stablecoin's.

ADVANTAGES	DISADVANTAGES
GLOBALLY SAME	BANNED IN SOME COUNTRIES
STABILITY	VOLATILITY RISK
LOWER TRANSACTION FEES	RISK OF LOSING
FAST SETTLEMENT	TRANSPARENCY ISSUES