Intro to MakerDAO: Understanding Stablecoins (Part 1)
Cryptocurrencies are revolutionary in every sense of the word. However, despite all its good qualities, there is one thing that has consistently stopped them from mainstream adoption. In fact, this one thing is so deeply interwoven with the crypto-culture, that it has almost become a joke.
Intro to MakerDAO: Understanding Stablecoins
Let us give you a hint:
Does that ring a bell?
Well.. how about this:
Still doesn’t ring a bell?
We are talking about volatility. That, in many ways, is the biggest barrier that cryptocurrencies are facing right now.
When you keep that statement in mind, you will understand why Stablecoins are so important.
If you were to define them, Stablecoins are:
digital tokens which are intended to provide measurable stability and security. In layman’s term, their value remains constant and stable.
Stablecoins have been called many things from “the holy grail of cryptocurrencies” to the “foundational component of the next-generation economy.” They have been embroiled in controversy and they have been dissected and studied by some of the smartest minds in the cryptospace.
For your reading convenience, we are going to be splitting up this guide into two parts. In the first part, we are going to acquaint ourselves with stable coins and why they are necessary.
In the second part, we are going to do a deep dive on the most promising stablecoin out there, MakerDAO.
The Importance of Stable Currencies
Stability of currencies is such an important aspect. In fact, let’s see a real-world example of how instability and over-inflation can cause havoc to the economy.
Back in the 80’s, the Zimbabwean dollar had strong growth and measured up pretty well against the US dollar. However, all that was about to change. From 1991-1996, the Zimbabwean Zanu-PF government of President Robert Mugabe embarked on an Economic Structural Adjustment Programme (ESAP) that had serious negative effects on Zimbabwe’s economy. Over that 5 year period, Zimbabwe went through extreme hyperinflation. In fact, in November 2008, the hyperinflation rate went up to 79,600,000,000% per month, which resulted in $1 USD becoming equivalent to the staggering sum of Z$2,621,984,228!
Image Credit: Wikipedia.
In fact, the government ran out of paper to print money, which