February 3, 2021

Stablecoins and Tether – What are they? Explained in Details

Presenting a consolidated video where Anton Golub, the CEO, and Co-Founder of Flovtec explains in detail about Stablecoins. Stablecoins are digital assets or cryptocurrencies whose price is attached to the value of another stable asset or cryptocurrency. You get to know in-depth about whether Bitcoin is a stable coin or not. Also, he shares the best examples of a Stablecoin, what are Stablecoins used for and what could be possibly the best Stablecoin. He explains in detail about Tether as to why it can be the best Stablecoin.

[Transcript of Video]

Today we are going to talk about Stablecoins. Stablecoins are cryptocurrencies or digital assets whose price is pegged to a value of another more stable asset or cryptocurrency. For instance, a Stablecoin’s price can be pegged to a cryptocurrency, to a fiat currency or to a real-world asset like gold.

When a stable coin is redeemable, we call it a backed Stablecoin. On the other hand, when the value and the price of a Stablecoin is algorithmically tied to a price and value of another asset, we call it a non-backed Stablecoin.

So, for instance, in a case of an algorithmic Stablecoin, when the price of that particular Stablecoin rises above the value of the underlying asset, then through an automated process, those Stablecoins are burned to keep and put the price back in line with the underlying asset.

Likewise, if the price of an algorithmic Stablecoin goes below the value of an underlying asset through an automated process of issuance, the price is intended to go up. While it is not the oldest and the first Stablecoin ever, today, the most used Stablecoin and the Stablecoin with the largest market capitalization is actually Tether. Tether is a dollar Stablecoin. Meaning each Tether coin is supposed to be backed up by a dollar since there is always one dollar in reserves backing that particular Tether coin.

The market capitalization of Tether has grown immensely over the last year and today it sits at a whopping 25 billion dollars. This is a six hundred percent increase since the last year. There has been a lot of confusion lately in the wider public about how Stablecoins appear, why are they used and what would happen with the price of bitcoin and cryptocurrencies if a particular Stablecoin collapses. Now, first, to clear all the doubts, Stablecoins are predominantly used by traders and market makers to move cryptocurrencies and digital assets between exchanges in a very fast way.

So, for instance, if a market maker tries to move dollars, between two exchanges using the traditional banking system, it might take several days to make the transfer. On the other hand, if a market maker uses Stablecoins to move those assets between exchanges, it might take him just a few minutes or seconds. Hence the growth and the increase of the Stablecoins predominantly reflects the needs and desire of traders and market makers to move assets between exchanges, trading venues and over the counter marketplaces.

Now recently, there has been a well-publicized medium article that actually claimed that in a specific situation of Tether collapsing that would result in a price drop of bitcoin. Now, if we reflect a bit back, if Tether or any other particular Stablecoin collapses, the opposite will happen because if traders, market makers and the crypto community have doubts about a particular Stablecoin, they would actually sell it and buy bitcoin and buy cryptocurrencies, meaning they would increase the prices of bitcoin and cryptocurrencies in a highly volatile manner.

So, I hope you managed to learn today a little bit about Stablecoins, why do they exist and how do they appear and I hope we removed the doubts of bitcoin or any cryptocurrencies dropping in price if a particular Stablecoin collapses.

So, thanks everyone and I hope you enjoyed this video.

 

 

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