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Ultimate Guide to Stablecoins Review

Diving further into stablecoins is this video from InvestAnswers "Ultimate Guide to Stablecoins - Key to the Future". It's a long video as it goes through quite a lot of detail but if you have a spare 1 hour 3mins it is worth it with 20mins of explanation and the rest is Q&A.


It goes through what stablecoins are and how they make trading easier in crypto (easier to on-ramp and off-ramp into cryptos), enabling better cross border transactions and gives traders an ability to hedge market activity.


He also highlights the categoriess of coins such as those backed by USD (or equivalent), backed by other cryptocurrencies and those which are algorithmically backed.


It then talks about the first and largest stablecoin, Tether, which is the most commonly known of the stablecoins and how this is mostly (75%) backed by commercial paper (more on what that is here). The issue here is that commercial paper is basically short term unsecured debt, so it is risky.


In comparison, there's also USDC which has taken up more market share and has a mix of what is backing it with much less attributed to commercial compared to Tether. Additionally, there is Paxos which is backed by cash and cash reserves but much smaller a reserve than USDC.


There was concern around the potential contagion that stablecoins like Tether (see USDT below) could have if its coin does blow up and its assets are not backed. Tether used to be over 75% of bitcoin trading volume (10% today) but CNY was much larger before China banned bitcoin a few years ago.


Additionally, the supply shocks that BTC and ETH would be expected to have if Tether really did impact either coin were simply not there per the chart below. This comes from research done by VoxEU "Stable coins don't inflate crypto markets".

Make sure to check out more videos from InvestAnswers.

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