What are Stablecoins?
Stablecoin is a cryptocurrency pegged to a stable asset such as (Gold, silver, diamond, oil, …) or fiat (Euro, Dollar). Backed by tangible assets, stablecoins have a stable value over time and have minimal price fluctuations.
From the above description of traditional Stablecoins, more Stablecoins types have been born after a period of development. Although they are different in structure, they still solve the same problem.
How many types of Stablecoins.
Stablecoin 1.0 are stablecoins issued against the collateral of centralized commodities such as USD dollar and gold (USDT, USDC, TUSD,..).
Stablecoin 2.0 (Decentralized Stablecoin) is issued based on the collateral of other cryptocurrencies (DeFi). Simply put, you can collateral your cryptocurrency to issue stablecoins.
Types of Stablecoin 2.0
- Over-collateral Stablecoins (Decentralized Stablecoins): Stablecoins created when collateralizing other cryptocurrencies with a total value higher than the value of minted stablecoins: DAI, VAI,…
- Non-reserve Stablecoins (Algorithmic Stablecoins): Stablecoins that are minted without any backed reserve, the price is kept stable by algorithms to adjust the circulating supply: UST, BAS, … constantly
- Partial-reserve Stablecoins (Fractional-reserve Stablecoin): This is the combination of full-reserve stablecoins and non-reserve stablecoins; they have better price control than non-reserve stablecoins but are more volatile than full-backed stablecoins: FRAX.
Why are stablecoins important?
- A bridge to the real world: We often use stablecoins to enter the crypto market and vice versa. This stems from the reason you enter the market, of course, for-profit, so you usually exchange fiat money into crypto to participate in the market. With low price volatility, stablecoins will be the best safe choice when you are undecided on which coin to invest in. Conversely, when you gain a profit and want to cash it out in the real world, stablecoins are also an effective option for you to do this. With the support of no-fee P2P transactions from top exchanges, it’s easy to exchange stablecoins for the fiat currency of the country you live.
- Great shelter during bear markets: During a bear market, it is not a bad decision to withdraw some or all of your crypto assets to stablecoins when the bottom of the market has not been determined. This action can help you avoid losing your investment and create the opportunity to buy back potential coins at a low price.
- An indispensable element in the DeFi ecosystem: It can be understood easily that the DeFi ecosystem works like a soft drink vending machine, and stablecoins and other coins are coins that you have to put in the machine if you want to get a can of soda (like the end result you want to get when participating in the DeFi ecosystem).
Holding stablecoins will help me make profits?
The answer here is yes; there are three main ways for you to profit from stablecoins.
- Lending: By lending your stablecoin to a 3rd party for a certain period of time, that 3rd party will optionally use your stablecoin for investment, re-lending, and trading,… At the end of the loan term, you will get your stablecoin back with the interest your depositors pay you.
- Staking: By locking your stablecoins on a platform to support the operations of the blockchain network, they reward you.
- Liquidity mining: Liquidity mining is a term that refers to making profits from DeFi platforms by providing liquidity to those DeFi platforms. More specifically, when you provide liquidity for a cryptocurrency pair in the pool of the DeFi platform, you will get back LP Tokens. If you stake that LP Token, you will get rewards on that DeFi platform; the more liquidity you provide, the more rewards you get.
Summary:
Stablecoins are a key element of the Crypto market in general and DeFi in particular. Besides the benefits that stablecoins bring, there are still risks when we hold and use it; for example, the loss of UST peg recently has caused the whole market to suffer heavily. And there is no such thing that can be sure that USDT, USDC, BUSD are bringing absolute safety and never crashing.
About Ashswap
AshSwap is the first decentralized exchange built on the Elrond blockchain that allows users to trade between stable assets with high volume and small slippage. As Elrond grows to become the infrastructure of DeFi, more types of stablecoins will flow in, and users will need a place to swap them.
Check out our social channels:
- Website: https://ashswap.io/
- Discord: https://discord.gg/ashswap
- Twitter: https://twitter.com/ash_swap
- Telegram: https://t.me/ashswap
