Understanding Stablecoin

What is a Stable coin?

A lot of the terminology for this business is still being established, and it's possible that in a few years, the term "stablecoin" will no longer be used to describe assets like the NFT dollar, but it will have become common language. In its most basic form, a 'stablecoin' is a blockchain-based digital asset that is supposed to maintain a continuous value, usually through a link to the value of another asset.
There are now four methods for creating a stablecoin:
  1. 1.
    Algorithmic techniques (derives value from a separate token specific to the stablecoin)
  2. 2.
    Collateralized Commodity (derives value from a commodity, e.g., Gold)
  3. 3.
    Collateralized Cryptocurrency (derives value from other cryptocurrencies, e.g., ETH, BTC)
  4. 4.
    Collateralized Fiat (derives value from a fiat currency, e.g., USD, EUR)

Money as a Unitary Value

Money has three basic functions: it serves as a medium of exchange, a unit of account, and a store of value. Digital assets were developed in part to enhance these functions, ushering in a new era of "Programmable money" and smart contracts.
However, none has been able to fully improve all three functions in a superior way, owing to their instability. Digital assets are not widely used as a medium of exchange; instead, they are mostly employed for speculation. Those that are more expressly designed to function as a medium of exchange have had a limited level of adoption. There simply hasn't been enough value, ubiquity, or convenience of use to encourage mass adoption. Most digital assets have much too much volatility as a unit of value to be considered an upgrade over many traditional fiat currencies. Bitcoin has traded at a high of $66,804 and a low of $5,032 versus the US dollar in the last two years.
The A volatile commodity, rather than a stable currency, is characterized by continual movement. Certain digital assets, such as Bitcoin, may be superior to fiat currencies as a store of value because they do not depreciate over time. Their volatility, on the other hand, means they don't work well in this regard, at least not yet.
This is a new category that was created with the goal of maintaining its worth throughout time. Although stable coins have garnered some traction, the existing models lack one crucial feature: Technological Advancement.
Most digital assets, in essence, do not meet the three basic functions of money, with their volatility posing the greatest risk. (Most have renamed themselves "crypto or digital assets" instead of "cryptocurrencies" because they don't resemble money.) However, there is a type of digital asset called "stablecoins" that was created particularly to address the issue of volatility.