Hello and welcome. You are listening to Patrick Boyle on Finance, a podcast exploring ideas from quantitative finance, examining events occurring in markets right now and financial history to see what lessons can be taken away, including interviews with some of the most interesting people in the world of finance. To learn more about the podcast, visit onfinance.org.

The big market event this week that's not getting a lot of press is the collapse of the

Terra stable coin, which has shown itself to be neither stable nor an actual coin. Tether, another much larger

stable coin with a market cap of around $80 billion, has also come under pressure when

it fell to around 95 cents yesterday before recovering somewhat. So what is causing these

stresses and do they matter outside of the world of cryptocurrencies?

Okay, so first up, stable coins are cryptocurrencies that are supposed to have a stable price in fiat currency.

They're supposed to be peg to a currency like the dollar, the pound or the euro.

And while they're a small segment of the overall crypto asset market, they are the most

traded coins in the entire crypto space.

They actually matter quite a lot.

Now, a lot of you might be wondering why these things exist at all.

Why would anyone want to own a crypto version of the dollar or the yen or the euro when

actual dollars yen and euros exist?

Well, the reason that stable coins exist is to reduce the fees, transfer times and the

privacy issues associated with transacting in traditional foreign exchange.

If you use stable coins, you avoid the need for multiple bank accounts, often in different

countries to transfer funds internationally.

You just need one crypto wallet in which you can hold these coins that are supposed to be

pegged to your currency of choice.

Stable coins are there to make peer-to-peer

digital transfers possible without a third-party intermediary like a bank. Cryptocurrencies are

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