Episode 24 - What happened to stable coins with the market meltdown?
I need to start off by saying this is not financial advice so if you are looking for that this show isn’t for you. The content of this podcast episode is for informational purposes only. The opinions expressed here are not meant to be taken as financial, investment, or any other advice.
These last few weeks we saw the crypto market get rocked. One part of this meltdown was stablecoins, which we are going to talk about further in this episode. We saw a tremendous drop in value for most if not all of the coins and I think this is important to go over and understand what and how this happened, with stablecoins in particular. Back in episode 6 we talked a bit about Stablecoins with what they are and how they work but as a quick refresher Stablecoins are tokens pegged to the value of a government-backed currency or fiat currencies such as the US dollar or commodities like silver or gold. Hence the name stablecoins because they are kept stable by being pegged to those assets and therefore can be traded 1 to 1 for them. But there are even some Stablecoins that are pegged to currencies with an algorithm which we will discuss in this episode.
Let’s answer first: what's the point of stablecoins? Stablecoins are seen as a safe haven to store cash without having to interact with the traditional financial system like banks or other regulated financial institutions. This means holding in a stablecoin allows crypto traders to both hold their money entirely on blockchains or in the crypto ecosystem without being burdened with the market fluctuation because stablecoins are supposed to be the least volatile. A lot of crypto traders hold stablecoins to easily go in and out of different crypto investments without using a traditional bank or fiat currency and can make for faster trades. Stablecoins are supposed to help crypto traders have a steady and less volatile place to park their cash and occupy a different role in the digital finance market because of this.