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Stability! How Can Stablecoins ‘Stable’ DeFi?


Market analysts think that using stablecoins tied to the dollar allows for substantial returns when used as a medium of exchange.

Stablecoins have the potential to influence the decentralized finance (DeFi) environment according to the behavior of decentralised markets. Stablecoins will likely close the gap between conventional finance and lending and borrowing in cryptocurrency marketplaces.

According to a report by Messari, a company that researches cryptocurrencies, the stablecoin’s monetary basis reached over $65 billion. It secured one trillion dollars in transaction volume in the first quarter of 2021. Additionally, USDC’s market share rose by 17%. “I think a crucial component of DeFi is financial stability. A stablecoin is anchored to a physical good, fiat money, or digital asset. These stablecoins also aid in supplying liquidity in DeFi applications, such as the lending protocols, according to Punit Agarwal, founder of KoinX, a platform for bitcoin taxation.

DeFi Market:

Market analysts think that stablecoins linked to the dollar, like USDT, allow for substantial returns when used as a medium of exchange. According to Circle, a global financial technology (fintech) company, using dollar stablecoins would enable one to generate income in the DeFi market by avoiding the implications of the cryptocurrency market’s volatility.

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“Stablecoins aid in reducing the market’s potential volatility. If an investor, for instance, locks Ethereum on a Defi platform, Ethereum’s price decline may nullify the dividend produced. According to Raj Karkara, COO of ZebPay, a cryptocurrency exchange, if an investor utilizes a stablecoin for the same purpose, the yield generated will not be impacted because the stablecoin is often tethered to the dollar or any other price-stable commodity.

Financial industry-friendly:

According to reports, businesses like Circle, Paxos, Binance, and MakerDAO, among others, are well recognized for issuing cryptocurrencies whose value is tied to the US Dollar (USD). Financial analysts think stablecoin-focused DeFi can be advantageous for the financial industry as a whole, particularly for industries like banking and finance, remittances and international payments, supply chain, and logistics.

Furthermore, stablecoins have the potential to replace traditional savings vehicles in the future and support ordinary investors in international trade. Private banking company Julius Baer Group’s research, revealed that to promote the adoption of stablecoins and other cryptocurrencies in the financial sector, international regulators need to strike a balance between DeFi and traditional finance. The platform supported its insight by pointing out how stablecoins and sovereign-backed money are related and how their issuance by private companies can result in unethical behavior.

Companies and people can begin using stablecoins to store and transfer value as demand grows due to their lower volatility. Additionally, as DeFi expands, there should be a greater need for stablecoins to enable cheap international payments. The creation of stablecoins is unlikely to increase the value of the US dollar, according to Edul Patel, co-founder, and CEO of Mudrex, a cryptocurrency investment platform.


Market experts believe that dollar-pegged stablecoins permit its utilisation as a unit of exchange to generate high returns