Stablecoins In DeFi
This blog post will cover:
- What are stablecoins?
- What is DeFi?
- What is the role of stablecoins in DeFi?
- Stablecoins in 2021
- The most successful stablecoins 2021
What are stablecoins?
Stablecoin is a type of cryptocurrency that is backed by some other asset (such as dollar or gold, etc). In the highly volatile Crypto World, stablecoins seem to be more reliable than others. They provide both the best features of cryptocurrencies and fiat stability.
What is DeFi?
DeFi (short for ‘decentralized finance’) is an attempt to create an alternative financial system without unnecessary intermediaries. It helps to expand blockchain opportunities outside simple transfers of crypto. Over the years DeFi has grown into a multi-billion industry.
What is the role of stablecoins in DeFi?
Stablecoins play an important role in DeFi adoption. First of all, stablecoins allow investors to generate yield on their crypto assets. Let's see how it works. We are well aware that crypto volatility affects investors' profit. If an investor uses stablecoin, whatever happens in the market the value of an underlying asset stays the same, this protects this investor from losses caused by crypto volatility.However, it's not just individual investors who benefit from more stable assets in DeFi. Organizations also need fewer fluctuations to make sure that the correlation between the product and its price can be maintained.Moreover, stablecoins make it possible to bring into crypto such operations as borrowing and lending assets, which are crucial for business.There is an opinion that in comparison with fiat loans, stablecoin loans have a number of advantages, such as funds accessibility, loans of any size, easy exchange into crypto and fiat. On the other hand, there are some people who find fiat loans more comprehensible and advanced. They don’t like the idea that to get a loan in crypto, a person has to pledge the same amount of another cryptocurrency.However, all agree that stablecoin is a great tool that makes it more convenient to trade in the crypto market.
Stablecoins in 2021
Recently we can witness a significant rise of interest in stablecoins. Those who were trying to keep their savings away from fiat, now are turning their attention to stablecoins. Stablecoins also give an opportunity to move everything back into crypto easily whenever it may become necessary.The other reason for that is the opportunities that become available with the use of stablecoins. They make DeFi experience for businesses more pleasant.
The most successful stablecoins 2021
USDT (Tether) was launched in 2014 and is still considered one of the leading stablecoins. USDT is backed by the U.S. dollar and maintains a 1 to 1 ratio. Its market capitalization is $62 billion. Statistics show that in February 2021 57% of Bitcoin trading was done with the help of USDT.
USDC or USD Coin was created as a prototype of the U.S. dollar. It is an ERC-20 token and it operates on the Ethereum platform. It is a relatively new project that appeared in 2018, and rather quickly was considered one of the strongest competitors of USDT. This is quite understandable as USD Coin was issued by two major participants of the Crypto World, the Circle peer-to-peer payment service and the Coinbase cryptocurrency platform.
DAI is a stablecoin based on Ethereum. DAI is managed by Maker Protocol and MakerDAO. It is run in a decentralized way by smart contracts. One of the DAI key features is that new tokens can be minted by any user with the help of the Maker Protocol.
We can see that stablecoins provide a sense of stability that the Crypto World lacks. They bring in a wider variety of financial instruments, making DeFi even more attractive for all sorts of users. There are a lot of issues that must be solved to make mass adoption of DeFi possible. Undoubtedly, stablecoins provide solutions for some of them, and definitely open a door to more possibilities.