Stablecoins
 What are they and  how do they work?

I Lead in.  

A.   Take 1 minute to think about your associations with the word cryptocurrency’ and write down your ideas.

B.   Compare your lists of associations with other students. What similarities and differences do you have?

C.   What is your understanding of cryptocurrencies and how do you think they can impact the business world?

D.   What are some of the benefits and risks associated with investing in cryptocurrencies?

II Match the words to their definitions. Use four words in your sentences.

 

1.	volatile	A.	to convert an asset  into cash, often by selling it
2.	asset	B.	causing  disagreement or debate
3.	haven	C.	to exchange  something for its cash value or the item it represents
4.	fluctuation	D.	likely to change rapidly and unpredictably
5.	token	E.	a safe option in times of economic  uncertainty
6.	controversial	F.	to exchange goods or services
7.	to peg	G.	a valuable resource such as property, stocks, or cash
8.	to trade	H.	a situation in which prices, levels or interest rates go up and down
9.	to cash in	I.	a digital or physical object that represents a particular value
10.	to redeem	J.	to fix the value of something in relation to a particular currency or standard

  

III Watch the video and fill in the gaps with the words from the list. There are words you don’t need to use.

 

global regulators; invested; digital assets; controversial; dollars; stable; investors; crypto; detailed sets; gold; risks; cryptocurrencies; currency; bitcoins

 When you think of cryptocurrencies, 1) “______” probably isn’t the first thing that comes to mind. In the volatile world of 2) ______, prices can go up, or they can go down, often dramatically.

Stablecoins aim to achieve the opposite effect, maintaining a constant value to offer 3) ______a haven from the intense price fluctuations of bitcoin and other tokens. Or at least, that's how it should work.

The collapse of one so-called stablecoin, known as terraUSD, has shaken investors' faith in 4) ______. It's also set off alarm bells for 5) ______, who worry the phenomenon may hold much broader 6) ______to the financial system. So, what are stablecoins exactly, and why are they so 7) ______?

 In essence, stablecoins are 8) ______whose value are pegged to an existing asset — most often the U.S. dollar, though there are others tied to the euro and 9) ______, too. They’re sort of like casino chips for the crypto world. Traders buy tokens like Tether or USD Coin (USDC) with real dollars. Those tokens can then be used to trade 10) ______and other cryptocurrencies. And whenever someone wants to cash in, they can get the equivalent amount of 11) ______for however many stablecoins they want to redeem.

 IV Comprehension check. Watch the video in  Task III. Mark the sentences as True (T) or False (F). Correct the false statements.

1.    Cryptocurrencies are considered to be stable investments. 

2.    The prices of digital assets seldom change in a short period of time. 

3.    Stablecoins aim to maintain a constant value unlike bitcoin and other tokens whose prices fluctuate. 

4.    TerraUSD is the first US bitcon. 

5.    Investors are worried because terraUSD’s price continues to grow. 

6.    Global regulators worry that stablecoins’ collapses may hold broader risks to the financial system. 

7.    Currently stablecoins are considered to be controversial. 

8.    Stablecoins are cryptocurrencies whose values are pegged to digital assets or  national currencies. 

9.    Traders can buy tokens like USD Coin (USDC) only with bitcoins. 

10.Tokens like Tether or USD Coin (USDC) can then be used to trade bitcoins and other cryptocurrencies.

11.Tokens like Tether or USD Coin (USDC) can then be converted into cash.

 

V Match the words to their definitions. Use two words in your sentences.

 

1.	liquid	A.	to start to happen
2.	fiat currency	B.	amount available for use
3.	hassle	C.	to restrict
4.	to kick in	D.	difficulty
5.	to throttle	E.	able to be changed into money easily
6.	supply	F.	a government-issued currency not backed by gold or silver

  VI Watch the video and choose the correct option to complete the sentences.

 

Glen Goodman is a former financial journalist turned crypto investor. He ran me through the importance of stablecoins to the crypto market.

For any fiscal marketing/financial market/financial marketing to be efficient, it needs to be liquid, there needs to be a lot of trades/trainings/trading going on, it needs to be functioning smoothly. The problem is that transferring from fiat currencies/currently/expediencies like dollars into cryptos is actually a hassle. It costs money. It takes time. Stablecoins solve that problem by allowing you to transfer an amount of fiat currency into an equivalent number of taken/tokens/taking. And then those tokens can quickly and cheaply be traded in and out on the changed/exchanges/charges. It makes a world of difference.

But, as it turns out, some stablecoins aren't quite as stabilizing /stability /stable as they're made out to be.

Let’s just look at what’s happened to this stablecoin price, the terraUSD price, look at that absolutely extraordinary, dropped to just 12 cents here, way off its $1 peg.

We saw UST, one of the most popularized/popularity/popular US dollar-pegged stablecoin projects, totally collapse.

Consumers have gotten hurt real bad this time, and that’s a problem for the whole industry/industrial/ministry.

It was very much marketing/marketed/marker as a stablecoin. But terraUSD, otherwise known as UST, didn’t hold up to its promise. Instead of fiat currency reserves, UST relied on a complex let  the rules/set of rulers/set of rules. If the price of UST sank below a dollar, an  arithmetic/terrific/algorithm would kick in, creating new units of a sister coin called Luna while taking an quivered/valid/equivalent amount of UST out of circulation. The idea was that this would throttle the application/supply/apply of the stablecoin and push its price back up to $1.

 

 VII Match the words to their definitions. Use two words in your sentences.

1.	Treasury bill	A.	money or property that is used as a guarantee
2.	collateral	B.	financial obligations that are expected to be paid off within a year
3.	peg	C.	stated to be true
4.	to break the buck	D.	careful and detailed examination
5.	market value	E.	short-term (less than a year) US government bond
6.	purported	F.	to fall below the value of one dollar
7.	scrutiny	G.	an arrangement that fixes currency at a particular level
8.	short-term debt	H.	the price an asset gets in a marketplace

 

VIII Watch the video and choose the correct option to complete the sentences

 

1.    Stablecoins are in ____ different types.

a)   four                            b)    three                             c)  two

 

2.    The easiest to understand are the ones that are backed by _________ somewhere, or things like Treasury bills.

a)  dollars in a bank account           b) private investors             c)  digital assets

3.    The other type are the _________.

a)    algorithmic stablecoins

b)    arithmetic  stablecoins 

c)    analogical stablecoins

4.    What they tried to do, was get around the problem of needing tons of _____, loads of dollars in a bank.

a)  financial regulations            b) security measures            c) collateral

5.    As pressure is put downwards on UST through the mechanisms that work to try and ____ it, actually the price of Luna is forced slowly ____.

a) stabilize, upwards        b)  stabilize, downwards     c) sell, downwards

 

6.    In an extreme situation like this one, what happens is it becomes a vicious circle where UST has got pressure on its peg, it's becoming worth ____ than $1, the price of Luna ____ further.

a)   less, falls            b) more, falls         c)  less, grows

 

7.    In the efforts to try and shore up UST, the price of Luna falls even further, which scares people and makes them start ____ like crazy.

a)     speculating                          b)  buying              c)  selling

 

8.    After UST "broke the buck," Tether also temporarily ____ on numerous exchanges.

a) reached a dollar          b) fell below a dollar         c) fell to a dollar

 

9.    Tether is the world's biggest stablecoin by ____.

a) market value          b)    market share           c)  number of users

 

10.Tether has long faced doubts over whether it holds enough ____ to support its purported peg to the dollar.

a)  users                             b) assets                      c)  potential

 

11.Tether processed more than $10 billion in ____ in May.

a)  withdrawals                             b)  users                        c)  transaction

 

12.The source of Tether's ____ has been under scrutiny after a series of disclosures showed it wasn't always backed 1-to-1 by cash as initially claimed.

a)   concerns                   b)   market share                  c)  reserves

13.The big fear with Tether is, what happens if everyone were to start trying to redeem their tokens ____?

a)  in the bank                           b) at once                                c) digitally

 

14.Such a scenario would likely mean Tether having to sell off assets it holds, including ______, a form of unsecured, short-term debt issued by companies.

a)  commercial paper            b)  bitcoins                   c)  digital currency

 

IX Vocabulary focus. Follow the links. Study the words using flashcards, check your understanding, practise spelling new words. Play matching vocabulary game and solve the crossword puzzle. Take a test to check your knowledge.    

 X OVER TO YOU. Get ready to discuss the benefits and drawbacks of stablecoins with other students. Use the questions below to organize your ideas:

A.   Why do you think stablecoins have gained popularity in recent years? What benefits do they offer compared to other cryptocurrencies?

B.   Do you think stablecoins are a good solution to the volatility of cryptocurrencies? Why or why not?

C.   What are your thoughts on algorithmic stablecoins, like terraUSD, that do not rely on traditional reserves to maintain their value? Do you think they are a viable alternative to traditional stablecoins backed by fiat currency?

D.   The video mentioned that some stablecoins, like terraUSD, have failed to maintain their peg to the U.S. dollar. What risks does this pose to investors and the wider financial system?

E.      Some experts believe that stablecoins could play a role in the future of global finance, particularly in developing countries with unstable currencies. Do you agree with this assessment? What potential benefits and drawbacks do you see?