What's the point of a "stablecoin"

Stablecoin is a cryptocurrency that is always supposed to maintain its value at $1. I just don’t understand why people don’t use plain ol’ ordinary dollars if they want a currency that holds its value at $1.

https://www.wsj.com/articles/cryptocurrency-terrausd-falls-b…

**Cryptocurrency TerraUSD Falls Below Fixed Value, Triggering Selloff**
**Drop causes ripples in ether and bitcoin, exacerbating recent declines in their dollar values**
**By Caitlin Ostroff and Alexander Osipovich, The Wall Street Journal, May 9, 2022**

**One type of cryptocurrency, a so-called stablecoin, is meant to keep its value at $1. But on Monday, the third-biggest stablecoin, TerraUSD, fell as low as 69 cents, causing a flood of investors to sell their holdings.**

**Stablecoins get their name from their being tied to the value of government-issued currencies, such as the dollar. These $1 pegs are usually backed by Treasurys, cash and other dollar debt that is easily sold in times of market stress....**

**Unlike traditional stablecoins, TerraUSD is an algorithmic stablecoin. These pseudo dollars aren’t necessarily backed by any assets at all, instead relying on financial engineering to maintain their link to the dollar. Such designs have been criticized by market observers as risky because they rely on traders to push the value back to $1 rather than having assets that continuously support the price. If traders aren’t willing to buy them, coins can go into a so-called death spiral. ...** [end quote]

People are spending and lending hundreds of millions of dollars – REAL dollars – to buy and support stablecoins. I just don’t get it.

And I really don’t understand this paragraph. Maybe someone can explain to me how this makes sense?

**The break in the peg, which began over the weekend, started with a series of large withdrawals of TerraUSD from Anchor Protocol, a sort of decentralized bank for crypto investors, said Ilan Solot, a partner at crypto hedge fund Tagus Capital LLP. Anchor Protocol—which is built on the technology of the same Terra blockchain network that TerraUSD is based on—had been a major factor in the growth of the stablecoin in recent months, by allowing crypto investors to earn returns of nearly 20% annually by lending out their TerraUSD holdings.** [end quote]

20%? How can this be anything but a Ponzi scheme?

Wendy

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All currency depends on belief. Crypto has absolutely no ability to tax,therefore is as volatile as that particular belief system.

Government currencies,On the other hand,can and do tax their citizens to cement the belief in their currency. When There is nothing to tax relative to the currency base, currencies fail.

Jk

My belief is crypto = tulip bulbs.

2 Likes

Wendy,

It is not a matter of trading USD for USD priced goods. It is a matter of trading Bitcoin or Eth for USD. Stablecoins make it an easier faster transaction.

Entities can associate credit accounts with stablecoins.

Yes it is the ultimate question about stablecoins will they hold their pegged values and HOW?

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by allowing crypto investors to earn returns of nearly 20% annually by lending out their TerraUSD holdings. [end quote]

20%? How can this be anything but a Ponzi scheme?

Not a ponzi, but definitely a situation where there are guaranteed losers.

From what I gather, that lending was in the form of options. The 20% is probably the premium they were earning from those that were buying the options - probably people that were shorting the crypto.

I get a tiny bit of premium on a couple of stocks that I lent out of my brokerage account. I get that because someone else has borrowed my stock and sold it with a guarantee to return it in the future. I usually use that activity as an indication of when I might need to sell…

Hawkwin
Should have sold

1 Like

I just don’t understand why people don’t use plain ol’ ordinary dollars if they want a currency that holds its value at $1.

The crypto world seems to have a deep seated hatred and distrust of “trusted middlemen”, which is a big part of why they like crypto. Otherwise they’d just use PayPal, Zelle, Apple Pay Cash, etc. to send money from one party to another.

We pay our lawn service using Zelle from our checking account. Ditto for daughter’s piano teacher. I don’t have this distrust and hatred, and have no problem trusting the middleperson involved.

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Jk

My belief is crypto = tulip bulbs

If even THAT good?

When ‘bulbs’ imploded, it wasn’t years, months, or even weeks.

My God the stories that abound about the swiftness of that 17th century crashing guillotine.

That it happened amongst a population known for its supposed economic prowess is even further wonder.

We can only hope that when crypto hits the fan, the splatter effect can hopefully be contained. Maybe.

https://duckduckgo.com/?q=tulip+bulbs+crash&t=h_&ia=…

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Stablecoin is a cryptocurrency that is always supposed to maintain its value at $1. I just don’t understand why people don’t use plain ol’ ordinary dollars if they want a currency that holds its value at $1.

I believe that I heard recently that the reason “stablecoins” are used is for speed and reduced expense of transactions that occur in various parts of the crypto world. Transferring from ether to us $ and back to ether for the next transaction costs a lot and takes time, but transferring from a stablecoin is much faster and cheaper.

As an aside, I just saw that one of the stablecoins (Terra? Luna? One of those) completely collapsed to zero yesterday. So it appears to not always be all that stable.