Global Cryptocurrency

Stablecoin

<p>Stablecoins were created to fight against the ups and downs of cryptocurrencies. They aim to stay at the same value as regular money for buying, selling, and smart agreements. They use things like real money or computer programs to keep this value steady. Sometimes, though, stablecoins can become not so steady, and that&#39;s called depegging. This can happen because of imbalances, computer problems, tricks, or when people stop trusting them. This can affect the people who invest in them, use them, and the bigger world of cryptocurrencies. It can make things not very steady. But, when this happens, there&#39;s also a chance to make some smart trades. To make this better, we need strong management, watching things in real time, being open about what&#39;s happening, and working together. It&#39;s important to find the right balance between new ideas and keeping things steady as the world of cryptocurrencies keeps changing.</p><h3 id="what-39-s-a-stablecoin">What&#39;s a Stablecoin?</h3><p>The cryptocurrency world can be very up and down, with investments changing a lot, even 60-70% in one day. This is a big problem for people who use cryptocurrencies for everyday things. But there&#39;s a way to fix this issue. It&#39;s called a stablecoin.</p><p>Stablecoins are special coins that don&#39;t change too much in value. They&#39;re connected to regular money like dollars or euros. The goal of stablecoins is to create a digital thing that stays the same in value over time. This makes them good for things like buying, selling, sending money, and smart deals.</p><p>Stablecoins try to mix the good parts of cryptocurrencies (quick and worldwide transactions) with the steadiness of regular money. They&#39;re connected to a certain thing, like the US Dollar or the Euro. And they usually stay equal to that thing. We call this &#34;pegging.&#34; For example, USDT is equal to the US Dollar.</p><h3 id="how-do-stablecoins-stay-the-same-in-value">How Do Stablecoins Stay the Same in Value?</h3><p>Stablecoins need to stay the same in value to work well as a safe thing to use. They do this by using different methods:</p><h3 id="strong-fiat-collateralization-strong"><strong>Fiat Collateralization:</strong></h3><p>With this way, the people who make the stablecoin keep regular money like USD or EUR in a special account. They keep this money in reserve for every stablecoin they make. This way, they promise that you can always change the stablecoin for its regular value.</p><p>They check this by doing regular checks called &#34;attestations&#34; to make sure the amount of regular money they have matches the stablecoins they made. This keeps the stablecoin safe and the value stays the same. The biggest stablecoin, USDT, works like this.</p><h3 id="using-other-cryptocurrency-as-safety">Using Other Cryptocurrency as Safety</h3><p>Some people put a certain amount of a different cryptocurrency to get stablecoins. They do this to make sure the stablecoins stay valuable. The cryptocurrency they put in is worth more than the stablecoins, so if the price changes, they&#39;re still safe.</p><p>If the value of the cryptocurrency they put in becomes lower than a certain point because of changes in the market, automatic plans start. These plans sell the cryptocurrency to keep the stablecoin&#39;s value steady. The stablecoin DAI from MakerDAO works like this.</p><h3 id="using-computer-programs">Using Computer Programs</h3><p>Some stablecoins use computer programs to keep their value right. When the stablecoin&#39;s value starts to change, the computer program makes more or less coins. They use special sources of information called oracles to know the value of the thing the stablecoin is linked to, like exchange rates. The computer program uses this info to know when to make changes.</p><h3 id="value-from-real-things">Value from Real Things</h3><p>Other stablecoins get their value from real stuff like gold or silver. The stablecoin&#39;s value is tied to how much these things are worth. This makes them steady because the things have value. Just like the stablecoins linked to regular money, they also have checks to make sure there&#39;s enough of the real stuff kept safe. This way, the stablecoin&#39;s value stays close to what the real thing is worth.</p><h3 id="what-is-stablecoin-depegging-and-why-does-it-happen">What is Stablecoin Depegging and Why Does it Happen?</h3><p>Stablecoin depegging means that a stablecoin&#39;s value starts moving away from what it&#39;s supposed to be. This can happen because of different reasons.</p><p>Here are some of them:</p><ul><li><strong>Market Imbalances:</strong> When lots of people suddenly want or don&#39;t want the stablecoin, it can change the value and move it away from the right value.</li><li><strong>Not Enough Reserves:</strong> If the people making the stablecoin don&#39;t have enough of the regular money they promised to have, people might not trust it anymore and the value changes.</li><li><strong>Problems with Technology:</strong> If there are mistakes or problems with the computer stuff that runs the stablecoin, it can be changed by bad people and move away from the right value. This is mostly seen in stablecoins that use computer programs.</li><li><strong>Tricky Trading:</strong> Sometimes, big traders or people who want to hurt others can do tricky things with the stablecoin to change its value.</li><li><strong>People Stop Trusting:</strong> If people don&#39;t believe the ones making the stablecoin can keep it safe, they might sell it and the value changes.</li><li><strong>Big Events:</strong> Things like big money problems, rules changing, or important things happening in the world can change the value of the stablecoin.</li><li><strong>Too Many People Wanting Money Back:</strong> If a lot of people want to change their stablecoins back to regular money, the people making the stablecoin might not have enough, and the value can change.</li><li><strong>People Lose Faith in the Plan:</strong> For some stablecoins that use computer programs, if people don&#39;t believe the computer program can work well, they might sell the stablecoin and the value can change. An example of this is what happened to Luna in 2022.</li></ul><h3 id="stablecoin-depegging-how-markets-and-people-react">Stablecoin Depegging: How Markets and People React</h3><p>When a stablecoin&#39;s value goes away from what it&#39;s supposed to be, it messes up its main use as a safe thing. People get scared and start selling it a lot. This makes too much of the stablecoin and not many people wanting it. This makes the stablecoin worth even less.</p><p>But when this happens, it gives a good chance for some people to make money. When the stablecoin&#39;s value is less than it should be, traders can buy it for less and sell it back to the people who made it for more. And when the value goes up, they can do the opposite. However, getting directly to the people who made the stablecoin can be hard. Like, for USDT, you need at least $100,000 to do this.</p><h3 id="the-effect-of-stablecoin-depegging">The Effect of Stablecoin Depegging</h3><p>When a stablecoin&#39;s value goes off track, it can create many effects for different people involved in cryptocurrencies. Here&#39;s how it can affect them:</p><ol><li><strong>Investors:</strong> People who own stablecoins thinking they&#39;ll stay valuable for a long time might lose money if the stablecoin&#39;s value drops. Usually, stablecoins are seen as safe when the market is crazy, and people want to keep their money safe. But if the stablecoin loses value, people might not trust it anymore.</li><li><strong>Users:</strong> People who use stablecoins for everyday things like buying stuff or sending money might find it harder to do if the value keeps changing. This can make using stablecoins confusing and less helpful for everyday things.</li><li><strong>Traders:</strong> People who trade cryptocurrencies often use stablecoins to stay safe when the market is changing a lot. If stablecoins lose their steady value, traders might find it harder to stay safe. This could make trading more complicated and careful.</li><li><strong>Trading Platforms:</strong> The places where people trade stablecoins might have less people trading if the stablecoins aren&#39;t steady anymore. Also, if stablecoins lose their value quickly, it can make things tricky for these places to work well.</li><li><strong>Rules and People in Charge:</strong> People who make rules and look after things might worry about stablecoins losing their value. This can make them want to watch stablecoins more to make sure they&#39;re still safe and don&#39;t mess up the whole money system.</li><li><strong>Cryptocurrency World and New Ideas:</strong> If a stablecoin that lots of people use loses its steady value, it can change how people see the whole cryptocurrency world. Stablecoins help people move money between regular money and cryptocurrencies. If people don&#39;t trust stablecoins, they might not want to use cryptocurrencies as much. This can make it harder for new ideas and cool things to happen.</li></ol><p>When stablecoins lose their value, it can also make other cryptocurrencies and how much they&#39;re worth change a lot. This can make investors sell their cryptocurrencies quickly, making the whole market drop in value. This can be like a chain reaction causing big problems in the cryptocurrency world. People might also decide to put their money in regular things instead of cryptocurrencies.</p><h3 id="examples-of-stablecoin-depegging">Examples of Stablecoin Depegging</h3><h3 id="ust">UST</h3><p>UST was a special stablecoin from Luna. It was linked to the US dollar, so 1 UST was like $1. On May 7, 2022, about $2 billion of UST was taken from the Terra Anchor thing (which lets you lend money using Terra). Some of it was sold. This made UST worth less, around $0.91. This was a chance for traders to trade 90 cents of UST for $1 worth of Luna. This made UST worth even less.</p><h3 id="usdc">USDC</h3><p>USDC is a stablecoin from Circle. On March 10, 2023, after a bank called Silicon Valley Bank had problems, USDC lost its steady value. People thought USDC might not have enough money saved, so they sold it for less. People switched to other stablecoins like USDT. The CEO of Circle had to say that even if they couldn&#39;t get money from the bank, they would still get money from other places to keep the stablecoin safe.</p><h3 id="how-to-stop-stablecoin-depegging">How to Stop Stablecoin Depegging?</h3><p>The people who make stablecoins can do things to stop them from losing value:</p><ol><li><strong>Keep Good Money:</strong> They should keep different kinds of money and show everyone that they have enough. They should do regular checks to make sure they have enough.</li><li><strong>Watch What&#39;s Happening:</strong> They should use special tools to see if the stablecoin&#39;s value is changing too much. If it is, they should do something about it.</li><li><strong>Talk to People:</strong> If the stablecoin&#39;s value starts changing a lot, they should tell everyone what&#39;s happening and what they&#39;re doing to fix it.</li><li><strong>Change How They Work:</strong> They can make ways for people to get real money back for the stablecoin if the value is changing too much. They can also buy back the stablecoins from the market to make the value steady again.</li><li><strong>Use Computer Programs:</strong> Some stablecoins use computer programs to change how many coins are there. They can change the program to work better and keep the value steady.</li><li><strong>Test Things:</strong> Stablecoins should be tested to see what happens if things change a lot. This helps them be ready for problems.</li><li><strong>Work with Trading Places:</strong> The people who make stablecoins should talk to places where people trade them. This way, everyone knows what to do if the stablecoin&#39;s value changes.</li></ol><h3 id="final-thoughts">Final thoughts </h3><p>In the world of cryptocurrencies, when stablecoins lose value, it can make people worry and change how things work. We&#39;ve seen how this can be a problem for different people who use cryptocurrencies. To make stablecoins safe, people need to show they have enough money, use good tools, and work together. This helps keep things steady in the changing world of digital money.</p>

Understanding Stablecoin Depegging: Exploring Changes in Value.

Table of Contents

tradedog

Other articles published on Aug 22, 2023

3rd Biggest Bitcoin (BTC) Holder in World: Here's Who's Behind It

Bitcoin (BTC) Price Consolidates as Further Decline Looms

Unknown Crypto Wallet 3rd-Largest Bitcoin Holder with Over $3 Billion in Holdings

Whale Alert: 4.6 Trillion SHIB Tokens Worth $38.35M Moved

PEPE Price Analysis: Volatility High For PEPE As Stand At $0.0000010 Crossroads?

It's already been a year since the launch of BIM Group

Join our free newsletter for daily crypto updates!