They’re like bitcoins, but the developers piggy promise that each one will always be worth a fixed amount of real money.
Think of it like casino chips for crypto. If you want to buy lesser known cryptocurrency, no one is trading directly for dollars, the trades are happening from one crypto to another. You spend your actual cash to buy in, then you can cash out when you are done. But if you are trading all the time, looking for opportunities, you don’t want to just leave everything parked on some random cryptocurrency, because it’s highly volatile. Stable coins are like the casino chips because they hold a relatively stable value, so you have your money in those and it’s ready to trade whenever the need arises.
Stable coins can hold a stable value because they are usually backed by some actual assets like money and securities and stuff.
So their utility is that they are a form of USD that can easily interact with cryto markets.
Except that you have some anonymous strangers who pinky swear that they have said real-wolrd-asset backing.
There’ve been more than enough instances where said backing just didn’t exist.
isn’t that how economic crises start or something…?
Basically, yeah
It can mean a lot of things, but mostly, USDT/USDC are the two most used ones and are what we would normally call stable coins.
It’s simple: $1 per 1 USDT/USDC. A company pinky swears that it will pay you the money when coins are presented to them. So basically they are printing money with their credit.
It has its value, though. It is certainly easier than any other means of transferring money overseas and is actively used.
I guess I should have asked a better question. What I really want to know is how are stablecoins better than just plain ol’ bitcoin? And what happens when the asset(Bitcoin?) behind the stablecoin moves up or down? How do they keep the value at $1 USD?
Stablecoins are not better, they’re different.
If you’re on a trading platform, you have a cash account. You use the cash account to buy stocks, options, etc. When you sell these, they credit your cash account. You only actually get the money if you cash out your account, which most people who are actively trading don’t because it takes time to transfer out.
Stablecoins are like cash accounts for crypto. You can use them to buy and sell coins like Bitcoin or Ethereum. Then you can eventually cash them out, which takes more time.
how are stablecoins better than just plain ol’ bitcoin?
They’re not better. They’re fundamentally different.
How do they keep the value at $1 USD?
That’s the secret. They don’t. All we have is a said pinky swear. Stable coins are not truely stable.
But what is? USD is not truly stable in terms of its value either.
The difference is that the company promises to pay out dollars at a fixed ratio for their stable coins.
That means the price theoretically can’t fall below that price (because if the value was below the fixed ratio people would just not trade the coin but instead sell it back).
They also pay out the coin in exchange for real money at the same value, which stabilizes the coin against raising in price.
This promise usually only holds until people withdraw too much and it turns out the company doesn’t actually have the financial backing they claim to have.
But in theory stablecoins are closer to paypal credit than to bitcoin. You can exchange €1 in cash for €1 in paypal credit and you can exchange €1 in paypal credit for €1 in cash. So the value of paypal credit doesn’t go up or down.
Bitcoin has no such promise. Bitcoins are just traded between users, so the value can go up or down. So if you are lucky you get rich, and if you are unlucky you end up broke. That’s why Bitcoin and similar crypto works OK as a kind of large scale online casino, but not exactly as a currency that you want to receive your wages in.
But as with any crypto, stable coins are also worthless crap backed by some randos that you have to blindly trust.
Would you put your money into a “bank” account of a “bank” managed by an anonymous guy who swears he’s legit?
