The Role of Stablecoins in Decentralized Finance (DeFi)
The crypto ecosystem is developing at a tremendous pace, so new needs and challenges are constantly emerging. One of these calls was the high volatility of the market, which could either make a fortune for an investor in a few hours or make him bankrupt. Pegged assets have appeared on the blockchain to protect user assets. They have a relatively stable value and are not subject to rapid changes in the exchange rate in the market.
Pegged assets, or more simply stablecoins, are tied to a specific real-world asset, which allows them to maintain a fixed value even during a market crash. People can purchase such tokens through stablecoin AMM, a platform for conducting all possible transactions with these virtual assets.
Recently, the stablecoin concept has begun to expand, offering crypto investors more and more opportunities to make a profit. They have become one of the engines of progress for the entire blockchain ecosystem. Below, you can read more about the role of stablecoins in the DeFi sector.
What is the role of pegged assets in DeFi?
According to research, in 2021, the total value of stablecoins in the blockchain network was over $65 billion. This figure continues to grow at a rapid pace. Pegged cryptocurrencies also provide over $1 trillion in trading volume, awe-inspiring numbers. USDC has become the most popular token.
Stablecoins are an asset that is vital for funds protection during a bear market. So, for example, if an investor locks ETH in the protocol to profit, there is a possibility of losing a considerable amount of money due to a drawdown in the price of Ethereum. But, if crypto enthusiasts perform the same operation using the USDC token, they can be calm because the asset value will not change.
The DeFi market is now driven by decentralized exchanges, which generate the bulk of the trading volume. In these same DEXs, one of the leading financial instruments is lending, which is currently only possible with the use of stablecoins. The USDC token is hugely popular on protocols like dYdX, Compound, and Aave.
Many leading countries worldwide are holding discussions at the highest level on creating their stablecoins. This adds even more weight to pegged assets. If crypto investors think about whether it is worth investing in such tokens, they should do it. Perhaps, there are no cardinal changes in the ecosystem yet, but in the near future, stablecoins will take a leading position not only in the DeFi sector but in the entire cryptocurrency world.
Where to apply stablecoins?
Currently, pegged cryptocurrencies are widespread in the blockchain ecosystem spaces. More and more stablecoins appear every year, opening up new opportunities for clients to earn money. In addition, most centralized exchanges do not charge fees for transactions using pegged assets. This is highly beneficial for traders working with substantial cash flows.
Both newbies and professional investors can operate stablecoins. Below, people can find the main areas of application of pegged cryptocurrencies, which will open up many avenues for earning.
- Yield farming. If clients use stablecoins only to store their funds, then why not start receiving passive income? It costs only to lock tokens in the blockchain and become a liquidity provider. Crypto enthusiasts can earn interest through the commissions paid by investors during transactions.
- Swapping between blockchains. Changing coins that are located in different ecosystems is a costly process. But if traders do swaps with stablecoins and AMM, the process will be much faster and cheaper.
- Participation in decision-making. Some protocols give their stablecoin holders the right to vote on different protocol aspects. Besides, token owners can independently make changes to the protocol using the control panel. Whoever has more assets has more influence in the protocol itself.
As people can see above, the use of stablecoins in decentralized finance is extensive. On top of that, clients can also not lose money on commissions when cashing out funds. All they need to do is use stablecoins during the cash-out process. This way, crypto investors can get a little more money on hand.