INSUBCONTINENT EXCLUSIVE:
Originally, stablecoins were primarily used to buy other cryptocurrenciesStablecoins are a type of cryptocurrency linked to an asset like
the United States dollar that doesn't change much in value.The majority of the dozens of stablecoins that currently exist use the dollar as
their benchmark asset, but many are also pegged to other fiat currencies issued by governments like the euro and yen
As a result, the price of stablecoins fluctuates very little, unlike high-profile cryptocurrencies like bitcoin and ethereum that are prone
to sudden ups and downs.The first stablecoin, created in 2014, was Tether, which many other stablecoins are modeled after
Users receive one token for every dollar they deposit
In theory, the tokens can then be converted back into the original currency at any time, also at a one-for-one exchange rate.As of July 28,
2021, there were about US$62 billion in Tether outstanding, or a bit more than half of the $117 billion market capitalization of all
The next-largest is known as USD Coin, which has a market cap of about $27 billion.Originally, stablecoins were primarily used to buy other
cryptocurrencies, like bitcoin, because many cryptocurrency exchanges didn't have access to traditional banking
Money transfers take seconds to complete.Another useful feature of stablecoins is that they can work with so-called smart contracts on
blockchains, which, unlike conventional contracts, require no legal authority to be executed
The code in the software automatically dictates the terms of the agreement and how and when money will be transferred
This makes stablecoins programmable in ways that dollars can't be.Smart contracts have given rise to the use of stablecoins not only in
operate with limited human intervention.Collectively, these software-based financial services are known as decentralized finance, or
DeFi.Proponents hold that moving money via stablecoins is faster, cheaper and easier to integrate into software compared with fiat
currency.Others say the lack of regulation creates big risks for the financial systems
In a recent paper, economists Gary B
Gorton and Jeffery Zhang draw an analogy to the middle of the 19th century era when banks issued their own private currencies
They say stablecoins could lead to the same problems observed in that era, when there were frequent runs because people couldn't agree on
the value of privately issued currencies.Worried that stablecoins could pose risks to the financial system, regulators have also taken
greater interest in them recently.The Conversation United States publishes short, accessible explanations of newsworthy subjects by
academics in their areas of expertise.This article is republished from The Conversation under a Creative Commons license
Read the original article.
