Stablecoins are designed to maintain a stable value, usually to a single dollar. But what's the point and why would anyone use them?
You can think of an algorithmic stablecoin as a bucket of water left outside with a water level marked on the inside. To keep the water inside the bucket at exactly the same level, you set up a mechanism that adds or removes water depending on how far the water level has deviated from the mark.
Stablecoins make true peer-to-peer digital transfers possible without the need for third-party intermediaries to facilitate transactions. “You’d need to have a Chinese bank account, a Japanese bank account and a European bank account,” explains William Quigley, co-founder of theand one of the founders of USDT issuer Tether. “If somebody wants to send you euros or yen or RMB, the intermediaries who can hold those accounts swap out those currencies for the currency you are able to hold and send it to your bank. And along the way, they've skimmed a lot of money off the top for that.
“This is why it's extraordinary to me that an individual in New York, California or Texas can hold in their[wallet] 10 different tokenized currencies that stay in their native form,” said Quigley. “You don't need a Chinese bank account. You can keep a token representing that Chinese currency and use it as though it is Chinese currency without ever converting.”
As with all things crypto, there’s a perpetual balance to keep in mind between centralization and decentralization, stability and freedom, regulation and permissionless-ness.
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