They can use any for example USDT, and there are dozens of other stable digital currencies that they can use and can easily make such deal/contracts.

Why do you think people are craving for digital currencies and help me understand how this is going to help people betting on Bitcoin's long-term price.

Discreet Log Contracts (and in particular DLCFDs) are not so much about stabilizing the Bitcoin price

- Alice wants a stable price, Bob wants to leverage the position, Carol is an oracle knowing the current price in USD. So they agree on a contract that, when the contract expires (e.g. after 30 days), Alice will receive Bitcoins for the same value in USD than at the contract's start, while Bob will receive the remaining coins (minus a fee for Carol). If Bitcoin goes up, Bob will receive more Bitcoins.
- Alice and Bob create an address with a Bitcoin Script contract which includes a signature from Carol (see below) and transfer funds F to it, in the simplest case 50% of the funds are provided by Alice and 50% by Bob.
- Then Alice and Bob sign several off-chain transactions where the funds get divided, after expiration, according to a proportion like the terms of the contract, i.e. where Alice always receives the same value in USD, for different Bitcoin prices (e.g. for a price of 50k, 51k, 52k ... up to 80k).
- Once the deadline arrives Carol (the oracle) provides a signature which corresponds to the proportion which distributes the funds correctly for the current Bitcoin price. i.e. where Alice gets a BTC amount which corresponds to the USD value of her initial transfer to the multisig address.

This factor makes it highly volatile incompared to fiats because the demand and supply of fiats can be managed by the government with certain fiscal policies but some are failed to do that either and there local currency is now out of there hands due to there own vulnerable policies. In short, you will find a lot of fiat currencies as well, which are highly volatile.

You "read something" but you don't provide link to the source of information. Why?
A contract for a difference(or CFD) is term from the financial markets. Trader A and Trader B make a CFD about an asset with a base price of 100. When the asset price does from 100 to 130, trader A pays 30 units to Trader B. If the asset price drops down from 100 to 70, trader B pays 30 units to trader A. This is the most oversimplified way for me to explain this. It's basically a way for some traders to hedge the risk of drastic price movements. I don't know anything about "discreet log" contracts for a difference and I don't know anything about this ItchySats project. OP, perhaps you could elaborate more on what you know about ItchySats.

you can not have smart contracts

when it fails