Steemit Crypto Academy Week 6// Stable Coins (Tether) // Homework submitted to Prof. @yohan2on

A very insightful lectures on stablecoins @yohan2on and am happy being one of your student this week again. Thanks.

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Introduction
Cryptocurrency are very volatile in nature and therefore price will always surge, either upwards or downwards. In other to enhance and further increase the adoption and acceptance of cryptocurrency, there arouse a need to introduce a currency just like other cryptocurrencies but with the value peg at 1 USD along the value of a fait currency.

This currency cannot be affect by price fluctuations. Such a currency is called Stable Coin.

Intrestingly, as I went through your lectures I kept asking myself if there is really such thing as a stable coin because even the USD fiat currenecy the stable coin are paired to are even prone to price fluctuations.

Stable Coin TETHER
Tether is one of the oldest stable coin and an important tool in the full adoption of cryptocurrency in the world today. It is a cryptocurrency like the bitcoin, Ethereum etc but with a fixed price as the normal fiat US dollar, this means that it is peg at 1:1 with the US dollar or any other fiat currencies. It is also very important in the cryptocurrency trading, for those who trade cryptocurrencies, it is very important to remember the word tether. Should I say it a replacement for the USD? Yes, because it compares itself with the same value of 1 USD.

Tether cryptocurrency was introduced to help cub the price fluctuations experienced in cryptocurrency and to enable it to be used as fiat currency as intended by the holders.
The idea of an asset cryptocurrency, was first introduced in January 2012 by the bitcoin community, today exchanges all over the world accepts tether as a stable coin.

According to coinmarket and at the time of writing, Tether ranks no. 5 when considered by market capitalization (with a trading value of over 39 billion USD) It was first issued in the bitcoin blockchain before being passed through the Omni layer protocol and then to the Litecoin blockchain.

Tether also acts as a transit cryptocurrency, which speeds up your transfer of cryptocurrency into fait currencies and from fiat back to digital (vise versa), with tether one can easily trade without fear. Tether is also the reason for the total acceptance of cryptocurrency, as users can see the true worth of their assets and has created an open market for Cryptos.

According to a source: The stability of cryptocurrency investment is ensued through he use of tether back up fund and the amount of tether in circulation is equal to the amount of the back-up funds. source

How is Tether able to stay at 1 USD?
Before they can be called cryptocurrency tokens they are initially issued by the bitcoin blockchain through the Omni layer network of which each of this tether, issued is backed by 1:1 equivalent of the fiat currency which is held in deposit by the Hong Kong tether limited. Tether not used can redeemable or exchangeable by the Hong limited based on its terms of service.

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The process can further be explained by using the blockchain and Technology staked and process, which is further divided into 3 layers:

On the layer 1:
Layer 1 is the bitcoin blockchain in which the the tethers are issued.

On the Layer 2:
The tether being circulated passes through the Omni protocol to grant approval to create, or destroy tokens, track and report tethers activities on the Omni chest layer and finally enable users to transact, store tether and other tokens in a crypto secure environment.

On the layer 3:
This is the business zone where you can deposit fait currencies and receive tether in return, managing tether within exchanges, returning unused tokens, merchants receive tether as shown clearly in the diagram above.

How Tether funds are distributed

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Step 1:
The users deposits fiats currency into tether limited bank reserve

Step 2:
Tether enter circulation and account if the user is credited

Step 3:
Tether can now be transacted as other currency such as bitcoin, etc.

Step 4:
User deposits tether into its limited bank account

Step 5:
Tether is then destroyed by the limited bank, after which fiat currencies is sent to the user account.

Strength attributes to Tether
1)Tether is the oldest stablecoin and over 80% market dominance

2)Price stability and track record puts it ahead of others

3)Tether has being able to win the truth of users, this has also aided the acceptance of cryptocurrency.

Weaknesses of the Tether Stablecoins
1)Tether lacks full transparency and audition

2)It operates a centralized platform trusting funds to a single unit, this could be disastrous

3)Tether provides no enforceable legal rights to peg its self with fiat, e.g USD

Conclusion
Tether is undoubtedly the most and oldest stablecoin, it has been able to stabilize the price of ever fluctuating cryptocurrency and making it more acceptable to users all over the world.

Hope to be part of your class next week. Thank you.

Source:
Tether white paper