Stablecoins Explained

In this article I am discussing the nature and relevance of stablecoins, which projects pursue this ambitious goal and why stablecoins might nevertheless be doomed to fail.

What are stablecoins?

In most parts of the world, there is no such thing as a stable form of money. Especially in cases of hyperinflation, as it currently is the case in Venezuela, we can really experience the importance of a stable currency. Even fiat currencies such as the US Dollar and the Euro are subject to fluctuating exchange rates, diminishing purchasing power, and inflation. However, these fluctuations are usually so small that we can still use these government-issued currencies on a day-to-day basis.

These fluctuations are amplified in the realm of cryptocurrencies which are subject to massive volatility, making them both attractive to speculators and impractical for mainstream use. An ideal cryptocurrency is stable in its purchasing power or is at most slightly inflationary as to incentivize the owners to spend their coins rather than holding on to them. This ideal cryptocurrency is also known as a “stablecoin”. In their most simplistic form, stablecoins are simply cryptocurrencies with stable prices measured in fiat currency.

“A stablecoin is a cryptocurrency that is often pegged to another stable…