Hello my fellow comrades.

How's the family?

Time don reach make we yarn on top this crypto matter.

Today, na the matter of something wey dem dey call stablecoins we go talk about.

Before I start to dey yarn wetin e be, I like first yarn una say all these talk talk wey I dey talk na for me to make una understand wetin crypto dey about in general. Abeg, I no dey give advice.

As we don settle that one now oya, strap in make we dey go.

People wey do research talk say apart from say many people no even sabi wetin crypto be, the major reason why people no put hand inside this crypto matter na because say e no dey stay one place. Today you fit dey chop 16k5 pasta plus lobster make tomorrow come make you dey find golden penny spaghetti and vice versa. Na wetin dem mean when dem say crypto dey volatile.

Na because of this volatility some people come together create this stablecoins. So wetin come be stablecoins? Make i carry you trabaye.

Make we no complex anything, from the name, na simply coin wey be say the value suppose stable. If the value go equal 1 dollar, na so e suppose be from now till the end of time. If you notice, I talk say “suppose stable” I go explain why.

Stablecoins no dey generate their own value, the value dey always dey tied or pegged to the value of another thing. E fit dey pegged to paper money like the U.S. dollar or euros or make the value dey tied to commodity like gold. E get way wey be say this coins dey usually dey maintain this value.

How stablecoins dey stay stable

Our own naira dey remain at him value due to the actions wey be say dem people for uncle Meffy side dey take (CBN) and before I move on make I quickly yarn the difference between wetin central banks digital currency (CBDC) and stablecoins. Na government dey issue CBDC like our e-naira while na other organizations dey issue stable stablecoins like Tether.

Stablecoins dey remain stable based on the actions wey the people wey create am dey take. Based on this concept, we get 4 major types of stablecoins.

Fiat-backed stablecoins

No vex for the big grammar, fiat na simply paper money, anywhere you hear “fiat” na just the 1k, $10(as per the odogwu wey you be) note wey you dey hold.

So, this mean say na paper money value wey this stablecoin inherit. Example na USDT. The company wey dey issue USDT na Tether. For every USDT wey dey in circulation, Tether get one dollar in reserve either in cash or cash equivalents. Make we assume say na $100,000 worth of USDT dey circulation, e go mean say Tether get that $100,000 for hand.

So if you get 5 USDT for hand, e mean say you get $5 for hand.

Cryptocurrency-backed stablecoins

From the name, na stablecoin wey be say the value dey pegged to another cryptocurrency. We fit issue am make we use am launch another coin on a different blockchain. Example na Wrapped Bitcoin (WBTC) wey be say e dey backed by Bitcoin but e dey on top the Etherum blockchain.

Crypto backed stablecoins are created using code wey we dey call automated smart contracts.

Commodity-backed stablecoins

For here, na physical assets like gold, silver, oil and even land wey dey back the stablecoins. As the price of gold dey go up and down, na so the price of the coin dey follow like snail and him shell. Example na Paxos Gold (PAXG).

If you get PAXG, e go be like say you get gold for hand. So you go see say e dey easier to invest in gold because e no easy to find where you go buy gold and where you go keep am.

Algorithmic stablecoins

For this one, na complex set of computer codes wey dem dey call algorithms dey keep am steady. Example na UST wey be TerraUSD wey be say e suppose dey pegged to the dollar but e enter trences. Other examples na DAI, Frax

Now wey be say you don sabi the types wey we get, make we look at the advantages and disadvantages of stablecoins cause everything for this life get him good and bad.

But make I let una digest this one first, I no go like bombard you with too much information!

If you find this interesting or insightful or both, abeg try share am.

You fit tweet your questions or comments at me for the bird app @OfficiallyXenos

Till later, I remain your loyal comrade.