Bitcoin recently crashed, and it seemingly took down most of the other cryptocurrencies with it; despite that fact that some currencies were designed to keep their prices under control. The recent marketplace tumble appeared as a test for these stablecoins, as to whether they delivered their promise or were unreliable.
What drives the crypto space market is its volatility. People gamble on the cryptocurrencies to gain huge profits. But this feature, which may offer large profits, is rendered obsolete in the daily transaction.
Stablecoins try to confront this feature. The most important thing is that stablecoins are a financial vehicle i.e. it can’t be just ‘decided’ that gold can be traded for one dollar – what if people assume the gold to be worthless? No one would then sell anything for that coin, and the gold issuers will have to compensate more coins to convince the sellers. The whole point is to avoid this scenario. Therefore, 3 methods have been invented to tackle this issue – Fiat-collateralized stablecoins, Frypto-collateralized stablecoins, and Non-collateralized stablecoins.