Just Learnt About A Major Risk Involved In Stable Coins

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Quote from: Okwara on August 28, 2023, 09:33:23 AM

This forum is really helpful I must confess. I never knew about Pegging and Depegging. But after my previous post on whether to save in stable coins or my local currency, I got to know that even stable coins have their own risks involved, in which Depegging is one of the major risks

I'm very happy I asked the question and other users really responded very well. All the responses were really helpful. I think other newbies like myself learned a lot from the replies.

Fair enough that you knew this but many investors think that when the market is very volatile, the next thing that comes to their mind is to convert everything they have to a stable currency, for short term it is the good but using it to hold value have his own side effect. Some months ago, USDC deppeged in value, they have to use some back up funds to close that loss before it pumped back to 1:1 of the real price to USD.

Stablecoin values lies on what assets they are backed with, the ones we have right now are not transparent enough, I'm not sure why they are always like that but they don't disclose how strongly the asset that back the ticker name they list on public exchange and that is why you shouldn't trust, they are business enterprise by the way so you shouldn't trust them at all.

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Quote from: Okwara on August 28, 2023, 09:33:23 AM

This forum is really helpful I must confess. I never knew about Pegging and Depegging. But after my previous post on whether to save in stable coins or my local currency, I got to know that even stable coins have their own risks involved, in which Depegging is one of the major risks

I'm very happy I asked the question and other users really responded very well. All the responses were really helpful. I think other newbies like myself learned a lot from the replies.

While all stablecoins can depeg, it's worth noting that Exogenous stablecoins (stablecoins whose value is backed by assets outside of the protocol that powers it) are less likely to depeg and end up in a dead spiral like what happened to the UST stablecoin. It was an endogenous stablecoin (and algorithmic) and thus, it had a high likelihood of depegging and it did. Best approach I've seen is just to stick to USDT as a beginner and save yourself some trouble since we know USDT works and has worked longer than any other stablecoin.

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Quote from: hugeblack on August 28, 2023, 09:53:35 AM

Quote from: Okwara on August 28, 2023, 09:33:23 AM

This forum is really helpful I must confess. I never knew about Pegging and Depegging. But after my previous post on whether to save in stable coins or my local currency, I got to know that even stable coins have their own risks involved, in which Depegging is one of the major risks

This is not the only problem, but these currencies are centralized and your money can be frozen even if it is inside your wallet^[1]. Ownership of such currencies is not limited to the private key that you own, but rather it belongs to the company and gives you the right to use it in exchange for paying its full value, so it is worse than cash, which enables you to act absolute in it.

With the exception of DAI, almost all stablecoins are highly centralized.

Read more ----> PSA: Most Stablecoins Can Be Frozen, Even in Your Own Wallets

[1] Circle Confirms Freezing $100K in USDC at Law Enforcement's Request

With this been said, I also wish to know if the usdt can also be frozen as we?
If yes, then this is bad because I’ve always know it to be a digital U.S. dollar and with this I’m already getting scared of getting hold of them as it seems there are already a lot of risk associated with holding them

Someone also asked me sometimes ago about the possibility of freezing digital assets and since I believed tha whatever coin in your wallet with your private key can’t be frozen then I might be wrong with my thoughts an thanks to this thread as I’ve also Lear something new

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Quote from: Hamza2424 on August 29, 2023, 02:24:16 PM

...I think BUSD is safer than the USDT, this is my personal belief.

You obviously missed the news that Paxos Trust Company, which is the issuer of the BUSD stablecoin, suspended the issue of new BUSD tokens in February 2023. Paxos will continue to support this stablecoin until February 2024, after which BUSD will turn into an unsecured token.

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Quote from: Nwada001 on August 28, 2023, 09:46:28 AM

Can you also agree to the fact that even the so-called stable coins are not always stable? They try as much as they can to retain the exact amount equal to that of the dollar or whatever currency they are pegged with, but over time they usually lose some value. For example, it sometimes moves from the figure of 1-1 and brings it over to 100/99; that is to say, 100 USDT might be worth 99 USD. The pegged one is losing some value, but this is not caused by it being depegged; I believe it's as a result of market demand. Correct me if I'm wrong.

They are not actually stable just like the USD is not that stable. Although there can be differences in price but it is not always large compared to the volatile coins. Stable coins are good for us to hold when we notice that there could be a possibility that the market is going to be bearish which can lead to loses that is why we need to analyze the market In the proper manner so that we can see before things happens. Stable coins are stable because they are not volatile like the random coins in the market that do depends on volatility to survive the market.

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Quote from: Okwara on August 28, 2023, 09:33:23 AM

...I got to know that even stable coins have their own risks involved, in which Depegging is one of the major risks ..

It is for this reason, if you have such an opportunity, you need to keep your savings in USD, not stablecoins. And no matter which stablecoin you choose, you can't be sure that it won't suffer the same fate as UST. In addition, most of the stablecoins are centralized and can be blocked in your wallet.

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Quote from: hugeblack on August 28, 2023, 09:53:35 AM

Quote from: Okwara on August 28, 2023, 09:33:23 AM

This forum is really helpful I must confess. I never knew about Pegging and Depegging. But after my previous post on whether to save in stable coins or my local currency, I got to know that even stable coins have their own risks involved, in which Depegging is one of the major risks

This is not the only problem, but these currencies are centralized and your money can be frozen even if it is inside your wallet^[1]. Ownership of such currencies is not limited to the private key that you own, but rather it belongs to the company and gives you the right to use it in exchange for paying its full value, so it is worse than cash, which enables you to act absolute in it.

With the exception of DAI, almost all stablecoins are highly centralized.

Read more ----> PSA: Most Stablecoins Can Be Frozen, Even in Your Own Wallets

[1] Circle Confirms Freezing $100K in USDC at Law Enforcement's Request

Thanks, this is yet another risk involved. As a matter of fact, this was my first time of hearing about this Pegging And Depegging of a thing. I'm glad to be part of this forum. It is truly a place to gain some knowledge, especially if you're a crypto enthusiast.

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Quote from: Okwara on August 28, 2023, 09:33:23 AM

This forum is really helpful I must confess. I never knew about Pegging and Depegging. But after my previous post on whether to save in stable coins or my local currency, I got to know that even stable coins have their own risks involved, in which Depegging is one of the major risks

Yeah you're so right about that, stablecoins are pegged to fiat currency and that's where their risk is because they are centralized currency which can be frozen by an order of court in any case affecting even the stablecoins in your personal wallet. And I don't get it why it should be called stable-coin when it's not always stable in exact value to the pegged currency.

Quote

I'm very happy I asked the question and other users really responded very well. All the responses were really helpful. I think other newbies like myself learned a lot from the replies.

Learning in the forum is not concentrated to newbies alone, both newbies and olders members of the forum do learn from each other as no one is an autarchy of knowledge and that's why we're advised to ask reasonable and valid questions and contributions which can be of benefits someone somewhere in the forum.

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Quote from: Okwara on August 28, 2023, 09:33:23 AM

This forum is really helpful I must confess. I never knew about Pegging and Depegging. But after my previous post on whether to save in stable coins or my local currency, I got to know that even stable coins have their own risks involved, in which Depegging is one of the major risks

Above all things, it's also important to state that as much as this " Pegging and Depegging" is considered as a risk, it actually doesn't happen often which is why stablecoins are still in use today, meaning they might not be of high risk after all Roll Eyes

But what really scares the fintech world when it comes to stablecoins, has to be the centralized foundation they are built on which still remains in our subconscious as someone has an invisible hand in them which is the major risk imo...

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Quote from: ZAINmalik75 on August 28, 2023, 12:55:37 PM

You are right, and yes there are many other factors also exist which impact pegging and de-pegging.

One thing I know supports the value of the so-called stablecoins is the amount that the owners are willing to pump into them in order for them to retain their price. Left to survive alone, it will lose its value over time. or if the project happens to fail along the line, the coin will definitely lose value in an instance. This is to say that the survival of most stable coins is dependent on their developers and the success of their project.

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Quote from: Agbamoni on August 28, 2023, 09:20:31 PM

Quote from: Nwada001 on August 28, 2023, 09:46:28 AM

Can you also agree to the fact that even the so-called stable coins are not always stable?

Many stable coins ask us to have faith that they're backed by reserves, kept in banks. They want us to think it's different from Bitcoin.

They are only trying to bring an old way of doing things, but on a blockchain.

It's obvious that stablecoins also have risk measure you can as well try to avoid, when emphasising on stablecoins you should know that they also expericnce devaluation sometimes, but I don't know actually what some people think is a stablecoins, because a stablecoins so many of it is centralized whereas few might be decentralized. I like you to make a proper research of stablecoins and figures out the risks involved in stablecoins, and when emphasising on it you also include the source

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Quote from: Okwara on August 28, 2023, 09:33:23 AM

I never knew about Pegging and Depegging. But after my previous post on whether to save in stable coins or my local currency, I got to know that even stable coins have their own risks involved, in which Depegging is one of the major risks

How did you think stable coins get their 'value', they are of course pegged to certain fiat currencies or other cryptocurrencies, thus they can also lose their peg or the issuing company can go insolvent, and since they hold the reserves that keep the stable coin at 1:1 on what they are backed by, it then becomes useless.

Having said that, i'd advice you to save your money in your local fiat bank rather than in stable coins, the money in your bank account is insured up to a certain amount and if the bank fails you'll get something back, the average bank also provides better security for your money than with stable coins which can be frozen in any wallet that it is stored in.

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Quote from: Okwara on August 28, 2023, 09:33:23 AM

This forum is really helpful I must confess. I never knew about Pegging and Depegging. But after my previous post on whether to save in stable coins or my local currency, I got to know that even stable coins have their own risks involved, in which Depegging is one of the major risks

I'm very happy I asked the question and other users really responded very well. All the responses were really helpful. I think other newbies like myself learned a lot from the replies.

De-pegging of the stablecoin has been an ongoing science since these coins were introduced, To analyze stable weather its risk-free or not you have to check out the reserves on the back of the Coin. As Algorithmic stablecoins are one of the riskiest stable coins proven by the Luna incidents there few team flaws and kind of manipulation factors as well but still you have to think before holding the algorithmic stablecoins. Most the people prefer USDT but I think it is one of the most shady stable coins, I think BUSD is safer than the USDT, this is my personal belief.

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Op, The forum is indeed a great place to be when seeking knowledge or information about crypto basically for anyone interested in gaining more knowledge because some came for a different purpose. I must admit that the year plus that I have spent here so far has hugely transformed my life based on the kind of information and knowledge that the forum has equipped me with. Keep learning mate!

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I think the best way to more contribute to the forum is to post the topics that you have gotten it from. The resources have helped you understand those risks that you might encounter since you are thankful for the forum right?

The best way is that you continue to learn.

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Left aside the fact that stablecoins don't follow the same principles of decentralisation we value in Bitcoin, risk of depegging is real and we have recently been witnesses of it. On the other hand, hyperinflation and devaluation of national currencies in many countries is so high lately that it wouldn't be unreasonable for many citizens of these countries to use stablecoins in order to freeze the value of their savings. They should choose between two risks: the one we are talking about in this thread, and the risk of doing nothing while their money lose value.

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Quote from: aysg76 on August 29, 2023, 01:06:54 AM

For people actually Binance and coinbase are also safest option to store their coins as they have high level of security even if they possess keys to your coins so they're actually not understanding what's the system and disadvantage of these centrally operated coins.They trust stable coins but in reality they are not stable to what we expect as we have seen in Luna case so thinking about it is a mistake.

This belief has always been the reason why platforms such as Binance and Coinbase misuse customer funds for their own personal interests, even with the occurrence of variables such as FTX, so it is natural for them to trust that USDT is safe inside their wallets. Learning is always difficult and after losing money and not benefiting from previous lessons.

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The fact that it can be frozen while in your own wallet is kinda scary that's why I only use stable coins for conversion and only a small amount of crypto I risk for it since I need to convert it so I can send them to my local wallet and by some virtual items in my online games. other than that like what others are doing, they hold stable coins as if it has no risks and they are holding huge amount of it while they are blinded by the fact it could be frozen at any moment. I never do such a thing because bitcoins are already there what else could I ask for more? All I need to do is move it to my personal hard wallet and I'm everything fine with it without thinking about the risks of most stable coins have.

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Quote from: LogitechMouse on August 29, 2023, 03:44:33 AM

~snip~
TBH, I don't know the reason why there are some investors who are holding stable coins. I mean if they want to get profit then at least invest into volatile cryptocurrencies such as Bitcoin right? Can please share some reasons as to why there are some investors who are hodling some stable coins.

The reason is that they insure themselves against the volatility of BTC and altcoins, so when their price starts to drop, they transfer everything to stablecoins instead of fiat - which then enables them to have their funds at their disposal and can transfer them very easily and quickly between different CEXs.

This certainly makes sense because that way you can have fast transactions and bypass the bank in the entire process of deposits and withdrawals, while the risk of stablecoins is already mentioned and is not something that worries most people. The vast majority of people still trust banks, and private companies that issue stablecoins are in a way digital money banks that actually use fiat to make their product valid and trusted, which means that if you believe in fiat, you also accept stablecoins as a completely normal thing.

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Quote from: Okwara on August 28, 2023, 09:33:23 AM

This forum is really helpful I must confess. I never knew about Pegging and Depegging. But after my previous post on whether to save in stable coins or my local currency, I got to know that even stable coins have their own risks involved, in which Depegging is one of the major risks

I'm very happy I asked the question and other users really responded very well. All the responses were really helpful. I think other newbies like myself learned a lot from the replies.

In general, all of the investments have risks, and stable coins aren't an exception to it.

Depegging is only one of the risks of stablecoins. Centralization is also one of the risks of it since most of the stable coins right now have a central authority. I mean that's very risky, and the best example for that is Terra Luna's UST. One single glitch on the project, investors took advantage of it, and boom UST de-pegged for a few days. Many still expecting that it will go back to a dollar, but when they saw that it has been days, and it hasn't been returned to that price, they knew the whole project is F*cked already. Another one is Tether whose been into a lot of controversies, but within the last years, I haven't hear any problem with them anymore.

TBH, I don't know the reason why there are some investors who are holding stable coins. I mean if they want to get profit then at least invest into volatile cryptocurrencies such as Bitcoin right? Can please share some reasons as to why there are some investors who are hodling some stable coins.

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Quote from: hugeblack on August 28, 2023, 09:53:35 AM

This is not the only problem, but these currencies are centralized and your money can be frozen even if it is inside your wallet^[1]. Ownership of such currencies is not limited to the private key that you own, but rather it belongs to the company and gives you the right to use it in exchange for paying its full value, so it is worse than cash, which enables you to act absolute in it.

For people actually Binance and coinbase are also safest option to store their coins as they have high level of security even if they possess keys to your coins so they're actually not understanding what's the system and disadvantage of these centrally operated coins.They trust stable coins but in reality they are not stable to what we expect as we have seen in Luna case so thinking about it is a mistake.

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Unless and until you are into trading or want to do a transaction of fixed amount, it is good if you stay away from stablecoin. They are lot more risk & uncertainty involved in keeping stablecoin. It is better to always have Bitcoin over any other cryptocurrency, if you want to convert your fiat to crypto.

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Quote from: Nwada001 on August 28, 2023, 09:46:28 AM

Can you also agree to the fact that even the so-called stable coins are not always stable?

Many stable coins ask us to have faith that they're backed by reserves, kept in banks. They want us to think it's different from Bitcoin.

They are only trying to bring an old way of doing things, but on a blockchain.

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Quote from: Okwara on August 28, 2023, 09:33:23 AM

This forum is really helpful I must confess.

That's indeed right and I tend to agree that you'd become knowledgeable and full of awareness while you are here in the forum.
This community is good for learning about crypto.

Stablecoins are not designed for long-term growth in the same way that many other cryptocurrencies aim to appreciate in value over time. However, this stability can also be a valuable feature for investors looking to preserve their wealth without being exposed to the extreme price fluctuations associated with more volatile cryptocurrencies. So, isn't a pretty good idea to hold a stable coin but yes, it's useful in trading activities. It's frequently used for trading purposes and traders can swiftly move in and out of positions by converting their holdings into stablecoins during times of uncertainty or market fluctuations. So basically, stablecoins are commonly used to provide liquidity in decentralized finance (DeFi) applications and platforms, allowing users to earn returns on their holdings, not intended to hold them for a long term.

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How and why do stable coins depeg?
Why do stablecoins depeg?

In 2022, Terra algorithmic stable coin UST depeged and there are months with many attacks on some weao stable coins. Anotjer famous one is Tron USDD but Justin Sun had to use big money to support and save to peg.

Tron USDD stable coin wobbles from dollar peg.

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Quote from: Okwara on August 28, 2023, 09:33:23 AM

This forum is really helpful I must confess. I never knew about Pegging and Depegging. But after my previous post on whether to save in stable coins or my local currency, I got to know that even stable coins have their own risks involved, in which Depegging is one of the major risks

I'm very happy I asked the question and other users really responded very well. All the responses were really helpful. I think other newbies like myself learned a lot from the replies.

I don't to think there's a need to open another thread since you have initially created a topic about stablecoins. You got a lot of valuable replies from forum members, if you wanted to appreciate their responses or have any further questions to ask you would have done it on the same thread.

Stablecoins can be pegged and depegged any time, the depegging could be a soft or hard one and example of such cases is TerraUSD^[1]. Aside being depegged, they are centralized and can be frozen^[2] as well. When a hacker or scammer steals a stablecoin and it's quickly reported before it is converted to a decentralized coin like Bitcoin or ETH, the stablecoin can be frozen and rendered unusable by the hacker.

[1] The fall of Terra

[2] Circle, Tether freeze over half of the $126M assets stolen from Multichain breach

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Quote from: Okwara on August 28, 2023, 09:33:23 AM

I got to know that even stable coins have their own risks involved, in which Depegging is one of the major risks

There's nothing that does not have its own risk, we only try to play safe and manage ourselves in taking the risk alongside to serve us the benefits of doubt as an advantage in whatever we do in cryptocurrency, stablecoin are pegged currency in local fiat currency value, mostly USD, it may not be as volatile as other cryptocurrencies because it's been pegged but it's just only a way of holding down an asset without having any benefits that may come in through that, instead the value of the worth may even depreciate as at when making conversion provided same thing is experienced with USD, many still prefer other cryptocurrencies or even bitcoin the most because of the future opportunities in holding it unlike any other digital currency.

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I am glad you found useful content on this platform. And from my personal experience on this forum, I advise you to stay here if you want to learn more. And my advice for you in the stable coin is to never store your funds in stable currency, especially in USDC. As USDC has some high volatility levels. Store your assets in Bitcoin because of many factors. One of them is that BTC is the best investment against inflation as it is a hedge against inflation.

This forum is basically about crypto, and the more time you spend here, the more you will learn. To be honest, I am still learning a lot of things from this forum, and who knows what I will learn further? But investing time here will bring good fruit to your table. Your efforts to learn new things never go to waste.

Quote from: Nwada001 on August 28, 2023, 09:46:28 AM

I believe it's as a result of market demand. Correct me if I'm wrong.

You are right, and yes there are many other factors also exist which impact pegging and de-pegging.

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Quote from: Okwara on August 28, 2023, 09:33:23 AM

This forum is really helpful I must confess. I never knew about Pegging and Depegging. But after my previous post on whether to save in stable coins or my local currency, I got to know that even stable coins have their own risks involved, in which Depegging is one of the major risks

I'm very happy I asked the question and other users really responded very well. All the responses were really helpful. I think other newbies like myself learned a lot from the replies.

We do understand how grateful you are to the forum members. Thanks for the appreciation and good luck with your journey in the crypto world.

Stablecoin may not be always stable but it provides traders with speculative opportunities. Those who exchange their fiat or other volatile cryptos for a stable currency have the intention to rebuy volatile crypto assets or they want to provide liquidity in any DeFi application. In most cases, this is the fact. People do not want to keep stablecoin in their portfolio because it will not grow. If you haven't done anything bad like hacking any protocol your assets won't be frozen I think. It is not like they freeze your stablecoin without any reason.

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Quote from: Okwara on August 28, 2023, 09:33:23 AM

This forum is really helpful I must confess. I never knew about Pegging and Depegging. But after my previous post on whether to save in stable coins or my local currency, I got to know that even stable coins have their own risks involved, in which Depegging is one of the major risks

Glad that you've learned and appreciated everyone's help from the thread you've made. It's true that there's pegging and depegging. Talking about depegging, there have been series of stable coins that have already been depegged. Most of them that have permanently depegged were not even that popular but you get the idea that it's possible.

Whilst for some popular ones, you can see that they're not exactly the value of fiat that they're pegged with especially with USD.

A little bit of discrepancy like a few cents and that's already giving you the view of it.

Quote from: Okwara on August 28, 2023, 09:33:23 AM

I'm very happy I asked the question and other users really responded very well. All the responses were really helpful. I think other newbies like myself learned a lot from the replies.

You'll learn more and it's not just the newbies that keeps on learning, even us. Grin

There could be things that you know but we don't know and vice versa, enjoy your stay and learn more.

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Just stay here, and you will get to learn about the wonders of digital finance. In my short time here, I also learned a lot and am still learning a lot of new things. It means there is nothing here that could bore you, but you have to find the right section. And the thing that you learned about pegging and depegging, you should also insert that learning here in this post, or at least put the link to the topic that you created for asking about pegging and depegging.

This post is nothing more than stating the fact that you liked the forum so much, and to be honest, we all do, especially those who have been here for more than 10 years.

PS: The forum has a lot to learn.

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Quote from: Okwara on August 28, 2023, 09:33:23 AM

This forum is really helpful I must confess. I never knew about Pegging and Depegging. But after my previous post on whether to save in stable coins or my local currency, I got to know that even stable coins have their own risks involved, in which Depegging is one of the major risks

This is not the only problem, but these currencies are centralized and your money can be frozen even if it is inside your wallet^[1]. Ownership of such currencies is not limited to the private key that you own, but rather it belongs to the company and gives you the right to use it in exchange for paying its full value, so it is worse than cash, which enables you to act absolute in it.

With the exception of DAI, almost all stablecoins are highly centralized.

Read more ----> PSA: Most Stablecoins Can Be Frozen, Even in Your Own Wallets

[1] Circle Confirms Freezing $100K in USDC at Law Enforcement's Request

Nwada001

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Can you also agree to the fact that even the so-called stable coins are not always stable? They try as much as they can to retain the exact amount equal to that of the dollar or whatever currency they are pegged with, but over time they usually lose some value. For example, it sometimes moves from the figure of 1-1 and brings it over to 100/99; that is to say, 100 USDT might be worth 99 USD. The pegged one is losing some value, but this is not caused by it being depegged; I believe it's as a result of market demand. Correct me if I'm wrong.

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This forum is really helpful I must confess. I never knew about Pegging and Depegging. But after my previous post on whether to save in stable coins or my local currency, I got to know that even stable coins have their own risks involved, in which Depegging is one of the major risks

I'm very happy I asked the question and other users really responded very well. All the responses were really helpful. I think other newbies like myself learned a lot from the replies.

Topic: Just Learnt About A Major Risk Involved In Stable Coins (Read 296 times)