What are Stablecoins, and Why Do We Need Them
DeFi, General, Stablecoins - August 25, 2020
Stablecoins. Why are they important? What keeps stablecoins stable? Are they crypto? In this video, we’ll answer these questions and more.
Ever financial system needs something that does not lose its value. Well, at least for a short period of time. Bitcoin and Ethereum are valuable, but the value fluctuates. If I agree to pay someone in BTC or ETH one month ahead of time, because the price varies, when it reaches them the actual value may be different. Maybe I pay them too much, or too little, depending on the price.
In order to transact in a currency which remains stable, we need – a stablecoin. A stablecoin is just that, a currency that remains stable. Now, in order to determine stablitiy, stablecoins have a value. Instead of a random value, most stablecoins stick with the value of a real currency. Something like the dollar. Examples of stablecoins that are equal to the dollar are – USDT, USDC, Paxos and DAI.
The cool thing about these stablecoins is that their price is always equal to $1. But they give you features of cryptocurrencies like, you can send them to anyone, anywhere in minutes. They can be stored in a digital wallet that only you have the keys to. Stablecoins provide the stablity of fiat currencies and the utility of cryptocurrencies.
This dual feature makes them an important tool in the financial space. Financial functions like invoicing, lending, investing and more can be carried out without worrying about the volatility of crypto. This is why stablecoins are important and why they are becoming an important part of the DeFi space.
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