<div class="text-justify">
I am delighted to be a part of this season 4 week 5 class and I want to thank professor @awesononso for his elaborate lecture on Stability in Digital Currencies. Having gone through the lesson, am pleased to submit my entry.
#### <center>*Explain why Stability is important in Digital currencies*</center>
For us to be able to understand and expatiate the importance of stability in digital currencies, the terms **digital currency,** and **volatility** have to be elucidated.
- **Digital Currency**
These are intangible currencies that come in digital form without bodily characteristics whose transactions can only be made through the use of electronic wallets and computers or any Internet-accessible devices that are connected to the internet or specified networks. To a reasonable degree, digital currencies are not limited as they can be used for transactions, serve as a medium of payment, or traded although they can encounter some restrictions. Cryptocurrencies are a type of digital currency. However, one of the notable disadvantages of digital currency is **volatility**
- **Volatility**
This is the rate at which the value of currency changes. It refers to the rate of occurrence of rising and falling of currency. In addition, it denotes the movement of price as affected by buy and sell orders. The price or value of a coin or an asset can within a small interval fall to as low as $0.5 and in the next minute experience a 75% increase, this explains the volatility rate of such coin or currency. Since the value of most currencies is not static, daily it rises and falls as is influenced by the emotions traders in the market, and affecting the market, the need for stability arose, leading to the invention of stablecoins.
**Stablecoins** is a type of cryptocurrency that has a very small or volatility rate. They are those pegged digital currencies that have no or little fluctuations in price value for the reason that their price is somewhat steady within a certain spectrum. This implies that the value of stablecoins doesn't change much and they have a relatively definite or known range within which volatility occurs. The essence of these stablecoins is to peg assets' value to real-world valuable assets such as US dollars or gold. By this, volatility is predefined thereby making the trade of stablecoin easier compared to non-stablecoin. On the other hand, the rate of loss resulting from volatility is mitigated, hence, if, for instance, a trader has converted say **Bitcoin** to a stablecoin say **USDT** before a decline in price value, the trader would have no fear of loss of money.
As a result of the little or no fluctuations in price value, stablecoin has become a common choice for traders and a source of saving assets without the fear of loss.
#### <center>Do you think CBDCs would be good in the future? Weigh the pros and cons in your own understanding and state your position.</center>
First, let us consider the pros and cons of the CBDCs in a tabular form
Pros | Cons
- | -
Provides faster, cheaper transactions and ameliorated security | The state within which the currency would operate is will have strong control
Since there is no requirement of customers to have a bank account before holding them, financial inclusion is enhanced | The Central banks will be in of the money creation and control how people spend their money and this implies no privacy
Would enhance the development of monetary policies of a country | The governments may have difficulties making good planning of their economy
Can facilitate a government to fight against financial crimes | Would be centralized, hence the government would own and manage the coin and this may affect the value of the coin
Legal, backed by the government as such is generally accepted as a medium of payment or exchange | Will lead to liquidity as a good number of the citizens will not be using it
CBDCs which means **Central Bank Digital Currencies** would be a digital currency created and managed by the government of a particular country and this makes it **centralized** which is a problem that decentralized blockchain has managed to solve. The CBDCs will be directly controlled and managed by the government in line with their regulatory policies which will deny owners authority over their assets. In addition, due to the centralized nature of these CBDCs, holders will not have authority over their coins and this will make them unreliable.
In my opinion, I see this as a reversal of a trend. Going to the centralized system of finance is basically not a wish for the future, decentralization remains the ultimate.
#### <center>Explain in your own words how Rebase Tokens work. Give an illustration.</center>
To start with, a rebase token is a kinda stablecoin that is price elastic whose supply changes in response to its price fluctuations by means of **rebase mechanism**. The circulating supply is directly proportional to the demand rate of the asset. This means that the higher the demand rate, the higher the circulating supply and vise versa.
The supply of rebase token is sensitive to changes as such, demand and supply prompts the change of the circulating supply which also leads to the change of the tokens' price. This is to say that when the price is high, the supply is also high, also, a decline in demand will negatively affect the price.
<center>Illustration</center>
Supposing I have 5 rebase tokens in my wallet at $10. The price will increase by 100% if the demand is high, the amount in my wallet will increase to 10 rebase tokens. However, the value in the wallet will remain $10. On the other hand, demand drops, taking the price value down by 100%, the coin amount will drop to 2.5 but my wallet balance will still be $10.
#### <center>Go to the https://www.ampleforth.org/dashboard/. Check the necessary parameters and calculate the rebase %. What else can you find on the page</center>
<center><sub>Screenshot from [Ampleforth](https://www.ampleforth.org/dashboard/)</sub></center>
From the above screenshot:
***Oracle Rate = $1.003***
***Price Target = $1.061***
Calculating the rebase % using the formula:
*Rebase % = {[(Oracle Rate - Price Target) / Price Target] x 100} / 10*
*Rebase % = {[(1.003 - 1.061) / 1.061] X 100} / 10*
*Rebase % = {[(-0.058)/1.061] X 100} / 10*
*Rebase % = {[-0.0547] X 100} / 10*
*Rebase % = {-5.47} / 10*
*Rebase % = -0.547%*
<center>*What else can you find on the page?*</center>
From the screenshot above, the following are observable:
- Circulating/Total Supply at **112.395m/119.44m**
- Next Rebate countdown time at **3h:38m:50s**
Flipping through the page, I was able to find the following:
- The price chart showing the price value of $0.941
- The supply chart showing the supply of **120.09m**
- The market capitalization showing a marketcap of **121.84m**
<center><sub>All screenshot are taken from [Ampleforth](https://www.ampleforth.org/dashboard/)</sub></center>
#### <center>Trade some tokens for at least $15 worth of USDT on Binance and explain your steps.</center>
- Lunch your Binance app
- Click on the selected token
- I will be exchanging my TRX for USDT
- Click on the pair TRX/USDT
- This takes you directly to the trade and since I will be buying USDT with TRX, I will click on sell option
- Select the market option
- I will click on 100% since am exchanging the value otherwise, I will select enter amount manually
- Click on the sell TRX button
- Successfully done. We can see the value in my spot wallet
#### Transfer the USDT to another wallet with the Tron Network. From the transaction, what are the pros of the stablecoin over fiat money transactions? (Give Screenshot of the transaction).</center>
Transferring USDT to another acxount using Tron Network
- I will be selecting the USDT
- Click on the withdrawal button since I am required to transfer to another account ( I wi transfer this USDT to my TronLink wallet)
- Copy the address from here and paste on the receiving address column in Binance. Recall that I am using the Tron Network for this transaction
- Click on the amount to be transfered
- A network fee of 1USDT would be charged
- Click on the withdrawal button
- Click on confirm
- Verify and submit
#### <center>*Conclusion*</center>
One of the challenges associated with digital currencies is volatility, and this, to an extent, has posed a challenge on traders and affects the market. The stablecoin came into being in an attempt to combat the volatility of digital currencies. The rebase token also emanated to control the volatility of digital currencies, and being elastic and sensitive to changes, it increases and reduces in response to demand and supply fluctuations.
Thanks to you professor @awesononso for such a wonderfully eye-opening and great topic. It is quite impactful.
Cc:.
@xkool24
</div>