What are Stablecoins and Why they depeg?

Introduction

Our experiences have shown us how important cryptocurrencies are as they facilitate smooth international financial remittances. However, they have a dark side, their high price volatility which reduces a person or entity’s net worth within a short period. To counteract these rampant price fluctuations different blockchains introduced cryptocurrencies with high stable values. We are referring to stablecoins which are cryptocurrencies that do not lose their values oftentime.

Nevertheless, there is a nasty scenario in the crypto space where the values of stablecoins plummet through a process called depegging. Depegging takes place when the value of a stablecoin falls below the stated one.

For example, a stablecoin pegged at a ratio of 1.1 to the United States dollar may have a market price of $0.90. Depegging can be temporary or permanent. Permanent depegging results in a total crash of the coin like what happened to Terra USD (UST).

There are three basic types of stablecoins which are algorithmic stablecoin, crypto-collateralized and Fiat-collateralized.

Read my article for greater details https://www.gate.io/blog_detail/1588/Why-Are-Stablecoins-Always-Depegging-