Digital Currency vs Stablecoins

The rapid advances of technology leads to the adoption of technology into human society. With the adoption of technology that keeps happening each year, it isn't a surprise, if the future of technology will take a great role in the human society. Take an example such as, the adoption of the digital currency and the stablecoins.

(Picture of USD and BTC)

What's Digital Currency?

Digital currency or Central Bank Digital Currency (CBDC) is a currency that was issued by the government with purposes to be used as a legal tender for people to use. The adoption of the digital currency has been pushed because of the adoption of the cryptocurrency that grows rapidly each year. Many institution also start to use cryptocurrency such as to borrow or lend the cryptocurrency. With so many plans of the adoption, regulations will soon be needed. The digital currency is backed by the government itself and backed by the real money, which makes it more stable and have a lower risk of devaluation.

What's Stablecoins ?

Stablecoins are basically cryptocurrency that is pegged or tied with another financial instrument, commodities or other currency. It try to make the value of the stablecoins become stable by pegging it to financial instrument, commodities or other currency. By doing this the value of the stablecoins can become stable and be preserved, unlike other cryptocurrency that has so much volatility. But the problem is, how about the risk of holding stablecoins ?

(Stablecoins from coinmarketcap.com)

The Risk of Stablecoins

There is a risk that could make stablecoins can be not so stable anymore. The problem comes when the stablecoins start to pegging and lose its value. Stablecoins by its nature always try to balance the price and maintained its value. But when its start di pegging and losing its initial value, it could be a risk of losing the money, such as the recent accident of the algorithmic stablecoins called TerraUSD (UST). Stablecoins can only maintained its stableness if the asset that tied with it also stable, but the problem is an asset such as commodities could fluctuate over time.

There are types of stablecoins, such as

1. Fiat-Collateralized Stablecoins

Fiat-collateralized stablecoins maintain its value by using real money such as USD and commodities such as gold and etc.

(Picture of Money)

2. Crypto-Collateralized Stablecoins

Crypto-collateralized stablecoins are backed by other cryptocurrency to maintain its value. But the cryptocurrency that are tied need to be worth more than the stablecoins. The purpose of doing so, is to make sure the value of the stablecoins become stable.

(Picture of cryptocurrency)

3. Algorithmic Stablecoins

Algorithmic stablecoins is backed by the computer algorithm to control the supply of the coins in the market, by doing this the stablecoins could keep its value. The recent TerraUSD accident is actually algorithmic stablecoins, but then it cannot maintain its value and start to freefall.

(Terra Luna coin)

Conclusion

The first step for the true adoption of the cryptocurrency maybe will happen when the government around the world start to regulate cryptocurrency. By doing this, cryptocurrency will be getting more exposure, so the adoption will be happen. And with the recent accident of the TerraUSD, maybe it will be better for cryptocurrency to be regulated. There are also a rumors regarding TerraUSD accident maybe caused by an attack of a certain people. The accident itself already make people become anxious to put their money into cryptocurrency. Which is why by making cryptocurrency be regulated, hopefully it will regain back the trust from the people. As for which one is safer, its maybe best for UCDC to be released to, because the government can also track where the moneys flow and make sure no money launderer and a such. Although, it might also make the government become the one who controlling the citizen, but maybe in someway it was needed to make sure there are no criminals who's using the loophole for their own advantageous. But maybe there are other ways to solve this problem, but maybe for now it's the only way to solve it.

Note :

Not a financial advisor, it's better to diversify your investment and only put what you can lose.

Source

https://www.investopedia.com/terms/s/stablecoin.asp

https://direct.mit.edu/asep/article/21/1/29/109037/Stablecoins-and-Central-Bank-Digital-Currencies

https://www.protocol.com/braintrust/institutional-crypto-buy-in-effects?rebelltitem=6#rebelltitem6

https://coinmarketcap.com/id/view/stablecoin/

https://www.financialexpress.com/money/digital-currencies-stablecoins-safer-than-cryptocurrencies/2380858/

Digital Currency vs Stablecoins