Am delighted to be your student once again Prof. @yohan2on.
Nice lecture on stable coins, yes I had alittle clue about stablecoins until after this lecture.
As the name implies 'stable', they are coins which are not affected by any inflation or price fluctuations, such coins are stable, moreover, they peg their value with the price of other commodities such as the US dollars, even gold.
Their stability is maintained by the use of mechanism, an example of such mechanism is the smart contracts codes built on the Ethereum blockchain.
Stablecoins are able to stabilize the price of a fluctuating cryptocurrency, thereby bridging the gap between crypto and fiat world to ensure a better adoption of cryptocurrency.
According to you lecture today, we discovered that there two (2) categories of Stablecoins namely:
Fiat - collaterised stablecoins
Crypto - collaterised stablecoins
Commodity collaterised stablecoins
2)Non - Collaterised stablecoins
Let's look at some advantages and disadvantages of these categories:
For the fiat collaterised Stablecoin advantages are
it helps to reduce chances volatility being pegged on 1:1 bases,
it's simple and is also easy to comprehend.
Reduced vulnerability to hacks since collateral is not needed.
it lacks transparency
The need for a centralized body
Custodian must be trusted to store currencies with them
B)The cryto - collaterized stablecoins are based on certain collateral that must be refunded.
Decentralized and therefore is concensus resistant
Can be liquidated quickly and cheaply into a proposed collateral
No risk at all is involved.
It can lead to inefficient use of capital
It can auto liquidate into a selected collateral
Less price stable than fiat currencies
C)Commodity collaterised stablecoins are backed up by commodities such as Gold, etc. Their advantages are:
Since it involves a commodity makes it easy to use
They might also enjoy the increase of the value of their collateral
It's disadvantages are:
Prices of commodity might also fluctuates which result in great loss
Audition might be a problem
2)For the non - Collaterised stablecoins are those whose prices are fixed using a complex form of mathematical equation and manages by a central entity.
Advantages could be:
There are no commodity requirements
They are transparent and can be audited
It is a focal point and can survive if people think and can works towards sustaining it.
Issuing currency is easy
Since alogarithm is complex, analysis can also be complex.
Continuous growth is required.
The Steem Backed Dollar
Haven described understood and described the various categories of Stablecoins, we can convinently say that Steem Backed Dollar (SBD) fails under the non-collatrized stablecoins (or what is called the Seigniorage type of stablecoin) as no collateral is required to monitor the price.
Steemit has 3 sets of digital currencies namely, Steem, Steem backed dollar and the Steem power with each having various functions of which Steemit is powered by Steem currency. Now the Steem currently is a very volatile currency like Bitcoin, etc, in order to cub this volatility, Steem back dollars was introduced, the SBD is a stable currency of the Steemit blockchain working as those of USDT, DAI, etc. In Steemit, when your post is curated, you receive both Steem power and Steem backed dollar. This two currencies can be converted back to steem which can be traded, the first can be connect via the Steemit trading platform and the later being steem power can be retrieved by a process called 'Power Down'. Steem on the other hand can be traded in exchanges and is easily affected by price fluctuations, it can also be change into fait currencies.
SBD operates as an effective IOU and are worth one dollar worth of steem token when redeemed. The major aim is to prevent volatility of the Steem tokens, so peraventure it is affected, the number of steem equivalent in 1 SBD cannot be altered. Steem back dollar can also be held, traded or even changed into fiat government approved currencies.
Advantages and disadvantages has be stated in our previous discussion above.
Steemit is structured in a way that will encourage users, stablecoin forms and integral part of cryptocurrency adoption.
See you in the next class. Thank you Prof.