In the previous two parts (trading terms #1 and trading terms #2), we have gone through a lot of terms that every beginner should know, in this part, we will learn about what is ETP and what is stable coin.
ETP market
Exchange-traded products (ETPs) are types of securities that track underlying securities, an index, or other financial instruments. ETPs trade on exchanges similar to stocks meaning their prices can fluctuate from day to day and intraday. However, the prices of ETPs are derived from the underlying investments that they track.
Stable Coin
- Coins with no volatility
- It is meant to solve the issue of volatility, the problem inherent to Bitcoin and other cryptocurrencies
- The stablecoin is given value from Fiat currency on a 1:1 ratio.
- The most common stablecoin is Tether (USDT)
- If you switched to buying your €3 coffee in bitcoin every morning then its price would be constantly changing. Somedays are cheaper, somedays way more expensive – relative to euros.
- Imagine you are the owner of the coffee shop taking BTC payments. What happens if the price crashes just before you pay your employees? Their wages are still denominated in euros. Would you take that chance?
- Types of stablecoin
- Fiat collateral-based
- Fiat collateral-based stablecoins are issued by companies on-chain against corresponding bank deposits in fiat currency (collateral) – usually redeemable on a 1:1 basis at the issuing company.
- Crypto collateral-based
- The growth and consolidation of crypto markets have enabled another class of collateralised stablecoins, based purely on crypto assets.
- Algorithmic-based seigniorage
- These smart contracts aim to adjust the circulating supply based on demand for the currency, Price levels are kept by issuing more tokens when demand is high (via interest-bearing shares), and removing tokens as demand drops via a system of redeemable bonds and automated buybacks.
- Central Bank Digital Currencies (CBDCs)
- CBDCs are not cryptocurrencies, nor are they Stablecoins – but they include elements of both. They are “stable”, since a CBDC is nothing more than a re-engineered form of a national currency that incorporates some of the features that make cryptocurrencies so powerful.
- Fiat collateral-based
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