Finally Seeing the Point of Stable Coins

I’m fairly new to crypto. Maybe something like a year ago I Dabbled in Doge, and some time after that I started Hodlin’ Hive…and while I’ve continued to both dabble and hodl, there is still so much to learn.

I remember when I wanted to learn the stock market. All my studying and fake paper-trading failed to take me anywhere…I guess I needed some skin in the game. But when my first beloved stock, Inpixon (INPX) unexpectedly shot through the roof and crashed back down before I could blink, I found myself standing in the wake, a bewildered bag holder…what the hell just happened??? I wondered.

I had gone from something like 1000 shares worth like 15 cents (or something like that) - total net value of ~$150 - down to 22 shares worth like $2.00 - for a new net value of $44. I had been fleeced. It sucked, but once you see it from the perspective of the loser, you learn. And as long as I stayed in the stock market, from then on I always paid attention to news about upcoming reverse splits, and if I had a shareholder vote, I voted against them. (While a reverse split divides the float and evenly distributes the value, essentially leaving your portfolio value unaffected, it tends to shake confidence and cause a drop-off. More on reverse splits can be found here.)

Anyway, being fairly green to the crypto-sphere as a whole, I wondered what the hell stable coins were and why they would exist, except perhaps to further complicate the whole thing to keep rubes like me on the outside.

In my first attempt to define them in my mind, I thought of horse stables, like where Mr. Ed lived.

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I pretty much defined staking in my imaginary version of what stable coin meant. So once I learned about staking, I knew it was back to the drawing board - but there was no way I was Googling it. This was going to be figured out using imagination and context clues. Of course, it wasn’t long after I went back to the drawing board that I determined it was probably somehow anchored to the value of fiat. So now I had answered one question, kept one open (but WHY!!??), and created a new-a one…HOW?

I could write code that dynamically sets the selling cost of one coin, that follows the fluctuation of the dollar. It would look something like this:

set.price(myCoin) = 1USD

I knew that it couldn’t be this stupid, but I couldn’t figure out how they’d do it which a complicated algorithm. Maybe there’s a hidden float stock of coin that can be added to or removed from the overall mints float, to control volume and regulate the price? No idea.

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I’d be interested to know more, but we need to get back to the point. Today I was excited to see first-hand, just as how I learned about reverse splits, the value of stable coins. I saw HBD dip pretty hard yesterday, which further made me question the purpose. I wondered, do stable coins just cap around $1, but stay free to lose value indiscriminately? What the hell am I missing!?

But this morning HBD gave me enough context to make me think I’ve figured out the why. It looks like the algorithm may be somewhat delayed, but clearly HBD is strong and very well suited to hang tight with fiat. I suppose if the fiat crashes, this would suck, but at that point the token asset would most likely move with a high beta. So as long as there remains a standard fiat here, stable coins are good for spending, while token assets are stronger as speculative investments…?

Am I close? I know I hate the idea of spending my token assets. We’ve all heard the story of the guy who paid 10,000 for two pizzas. While at first I couldn’t understand limiting the risk and rewards potential of a crypto asset, I can’t fathom spending crypto when it has the possibility to moon - stable coins give us the chance to utilize the functional value of the blockchain, without completely stripping us of the fun of speculative investment.

So now, while I won’t Google it, I am ready to find out from others in the know: is my best guess anywhere near the truth? Were stable coins invented so we could use crypto assets for mundane spending without worrying about the potential of becoming guy who traded $400M in the future for 2 pizzas in the present?

@ecency, @leofinance, I leave this delicate matter in your most capable hands, and thank you in advance for your time.

EDIT: After putting this up, I saw this post from @pele23, which gave me a little more context to go off of in terms of the HOW.
From what he wrote:

…it sounds like the algorithms for stable coins must use the underlying token asset to somehow generate the value or absorb the excess, thus stabilizing the stable coin. Interesting. Am I getting warmer? Thanks!!!

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