The importance of stablecoins

The importance of stablecoins

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Jonathan
Jonathan

An editor at Coincrop


20 Mar 2022 | 10 min read
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tablecoins are a type of cryptocurrency. Unlike bitcoin and other ‘alt’ coins, stablecoins are nominally pegged to actual assets in order to limit price fluctuations. This stability has made them the currency of choice for buying other cryptocurrencies.

In this guide:

Disclaimer: All of the information written on Coin Crop is without influence and based on our analysis. No guarantee is offered concerning the accuracy of this information and therefore, any individual following up on it does as such completely at their own risk. Rates are correct at time of publication.

Background

Decentralized Finance “DeFi” is the financial application that enables digital transactions between parties that is built upon the Blockchain.

This facility enables anyone in the world (with an internet connection) to uncensored financial transactions, no banks or governments controlling what you are doing.

With traditional banking services, comes heavily controlled and regulated institution monitoring transactions from a central hub. When it comes to general banking, this covers general transactions, lending, money transfers, asset purchases these types of transactions all go through your bank (intermediary) and for each transaction they charge for it and monitor what you are doing, with Defi you remove the intermediary.

What is widely acknowledged is the current banking system is flawed, it has weakness, these come in various forms, from limited opening hours to bank account security, each bank has a different protocol for its security, and as such each is open to attack. Then you have the actual bank accounts details of the individual, how secure is their password, have the shared it, how safe is the debit or credit card they have just used?

On top of this you get all the charges for using the banks services for each transaction, with credit cards you have massive interest fees 20% 38% the charges are huge.  In recent time the banks have started to check what you are spending your money when you make an electronic bank payment to an individual or business. This extra security is known as Know your customer (KYC) the banks can also prevent you from making this transaction and they now have the right to freeze your bank account.

Very worryingly for the public, under the “Know your customer” this gives the legal ability for governments to track your bank account transactions and seize the assets. I completely understand this for tracking drug cartels but the public, its just another way of tracking you and what you choose to spend your money on.

Currently there is an estimated 1.7 billion people who do not have a bank account or access to a bank account for storing their wealth!

With an Internet connection, you can access DeFi, and there will be no monitoring body, there will be no bank asking why you are doing what you are doing, and further to this no bank there to block your transaction and also no bank that can block your account. DeFi is completely transparent and auditable.

The role of Stablecoins

The role of Stablecoins is to act as a bridge between everyday fiat currency and Crypto currencies, this role is aimed to remove the volatility from the Cryptocurrency market, a safe harbour if you will, these Stablecoin are also pegged to a reserve asset such as US Dollar and Gold and they are designed to function as store of value within an account.

This combination of traditional and digital assets has proved incredibly popular USD Coin (USDC) and is now the best way to store and trade your currency.

To minimise volatility, the value of a Stablecoin can be pegged to a currency, or to exchange traded commodities (such as precious metals or industrial metals).

With a Stablecoin you can transfer your USD far cheaper than you could do through traditional means, and with cost of a transfer is less than a Dollar for sending many hundreds of thousands of Dollars.  With this low costs it means that you can send international payments faster and for a lesser cost than traditional means.

You can also gain interest from a Stablecoins by depositing it with a crypto agency and these companies loan your coins to other parties. When it comes to the end of the agreed term,  you will get you Stablecoin back along with the interest accrued, depending on the amount loaned and the period it was loaned over, this can be as high as 12% which is considerably more than traditional banking. 

Tether

Tether USDT is issued by the Honk Kong Company and is one of the best know Stablecoins, it was renamed in 2014 from it first incarnation Realcoin.  The in 2015, it was enabled on the Bitfinex trading platform and it success grew from there.

The follow are rates that can be earned from lending this asset to savings organizations:

OrganizationTermsRatingAPY Rate
OKExFixed (7 days)

70.0%

AAXFixed (7 days)

60.0%

Midas InvestmentsFlexible

20.0%

AAXFixed (14 days)

16.0%

AAXFixed (360 days)

14.5%

Dai

Dai was formed by Rune Christensen in 2014, but it took a few more years for it to become part of the Ethereum network in 2017, and has grown successful in the following years. Dai is also back by Etheruim and pegged to the USD on a 1:1 ratio.

The follow are rates that can be earned from lending this asset to savings organizations:

OrganizationTermsRatingAPY Rate
Midas InvestmentsFlexible

20.0%

Blockchain.comFlexible

13.5%

CoinLoanFlexible

12.3%

YouHodlerFlexible

12.0%

NexoFlexible

12.0%

Binance USD

The BUSD stablecoin was jointly founded between Binance and Paxos. The key points of the BUSD are 1 BUSD is the equivalent to 1 USD.

The follow are rates that can be earned from lending this asset to savings organizations:

OrganizationTermsRatingAPY Rate
Midas InvestmentsFlexible

20.0%

AAXFixed (360 days)

14.5%

AAXFixed (180 days)

13.3%

CoinLoanFlexible

12.3%

AAXFixed (90 days)

12.2%

TrueUSD

This was the first Stablecoin to be regulated and fully backed by the US Dollar, the TrueUSD (TUSD) is legally protected and pegged to the USD in a 1:1 ratio.

The follow are rates that can be earned from lending this asset to savings organizations:

OrganizationTermsRatingAPY Rate
CoinLoanFlexible

12.3%

YouHodlerFlexible

12.0%

NexoFlexible

12.0%

HiFixed (365 days)

12.0%

HiFixed (180 days)

10.2%

TerraUSD

UST is another well known coin with a ration 0f 1:1 to the USD it is also one of the largest with a over 11.2 billion UST in circulation.

The follow are rates that can be earned from lending this asset to savings organizations:

OrganizationTermsRatingAPY Rate
NexoFlexible

17.0%

BitrueFlexible

16.0%

BTSEFlexible

15.6%

NexoFlexible

15.0%

AAXFixed (360 days)

14.5%


Jonathan

Jonathan

An editor at Coincrop
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