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In a 2013 paper published by David Yernack[2], the professor of finance at New York University stated that, for any currency to be useful to society, it should be able to function as a medium of exchange, a store of value and a unit of account. At the time, he was using these three criteria to discredit Bitcoin as a feasible currency for everyday use. And there is some merit to this.
Although popular cryptocurrencies can be used as a medium of exchange on a small scale and in certain ecosystems, it struggles as a store of value[3] or a unit of account[4]. The reason for this is the inherent instability of cryptocurrencies. Possible price fluctuations of 20% or more on any given day make it unsuited to comply with the latter two functions of a usable currency.
To address this price volatility, a certain subset of cryptocurrencies started to emerge, i.e. stable coins. Being defined by Brigitte Luginbühl, CEO of SwissRealCoin[5]:
“Unlike cryptocurrencies such as Bitcoin, which are highly volatile, stable coins provide people with the pragmatic, helpful benefits of a cryptocurrency, without having to worry about distressing price changes since they are grounded in the real world.”
A stable coin is designed to have a stable price or value over a period of time, therefore, less volatile.
These coins aim to mimic the relative price stability of fiat currencies on one hand, but still
