The Ultimate Guide To Stablecoins
It is possible to find DeFi protocols with +20% APY but beware of scams.
What are they?
Stablecoins or stable cryptocurrencies are a type of digital asset whose value is linked to that of another asset through a parity relationship.
The most popular stablecoins maintain a 1-to-1 relationship with the US dollar, while others do so with gold or even with other cryptocurrencies.
This type of asset eliminates the volatility inherent to cryptocurrencies and allows us to exchange our cryptocurrencies for “digital dollars quickly“.
Many people we know are becoming crypto maximalists. Some of them only with Bitcoins, others only with Ethereum, but in the end, they all have a portfolio concentrated in cryptocurrencies. With the arrival of many cards that do on-the-fly conversion, it is possible to leave aside our cash and have only cryptocurrencies. The most famous cards are Binance and Crypto.com, but Ledger and Astral (UST) are eagerly awaited.
This is an excellent alternative for the long term. It is estimated that the market cap for 2030 of cryptocurrencies could be $10T, which is 5x the current capitalization.
In addition, this week, Fidelity announced that it would let its clients add to the 401k Bitcoin.
For those Crypto maximalists, it is necessary to have a percentage of their portfolio invested in stable coins to cope with day-to-day payments without excessive volatility.
The incredibly sexy thing about a decentralized world is that it is possible to make a return on the dollars you have in your portfolio. Traditional banks have done this all their lives. In fact, years ago, they gave interest on your money saved in the bank.
Today with rates at 0%, they are eager for you to use your money or put it in one of their products with management fees of 2%.
What types of stablecoins are there?
- Collateralized by the dollar: There are stable cryptocurrencies that have a dollar in a bank or in US treasury bills for each token issued. They are also exposed to audits regularly. It can be considered an asset almost as safe as the dollar. The only drawback is that the institution backing these assets is centralized. The most famous are the USDC and the BUSD. In addition, they offer very attractive yields, as I tell you below.
Algorithmic: Last year, we saw a Cambrian explosion in stablecoins, notably experimentation around algorithmic stablecoins.
With more than seven stablecoins over $1B in market cap, competition is stiff. Today, DAI makes up 27.6% of all non-fiat-collateralized stablecoins, while UST leads at 52%.
Recently, Terra has been making big moves to protect UST’s peg. In mid-March, Terra started to execute plans to acquire $10 billion of Bitcoin as a reserve to backstop UST. This week saw another accumulation of $231 million in addition to buying $100 million in AVAX two days prior. But there is one task that UST has ahead of it: facing a bear market and seeing if it still retains its 1:1 ratio to the dollar or PEG. DAI we have seen has survived markets where ETH has fallen as much as 50% in one day.
These types of coins have another cryptocurrency that collateralizes them, and when more demand is required, the other token is burned and vice versa.
- Others: we have left this section for the most famous worldwide (by market cap), the Tether (USDT). It is a stable currency with a declared value of $1. However, Tether Limited, the centralized authority of USDT, is not audited. This has caused it to be fined by several financial regulators.
In addition, it is known that Tether, as we see below, is not 100% backed by real money.
Where can I get the most out of my stablecoins?
Here comes the best part, in many places. The main task for everyone is to choose those places where the risk-return ratio is the best possible.
The main places where we can get a return on our dollars are:
- Exchange (CEX): All exchanges have a section called “Earn”, where you can find different strategies to get the best return on your dollars.
The best-known exchanges with the best yields are Binance, Kukoin, and Kraken. We can get +6% of our dollars, as you can see below.
In some cases, even returns of 10%.
The main problem with this type of investment is that a central institution governs our money. But it is possible to get better returns and also control our money ourselves with the following section.
- DeFi Protocol: We could define DeFi 2.0 as the new generation of decentralized finance protocols or applications whose objective is to solve the liquidity problems that affect the correct functioning of their predecessors, the original DeFi. In these, we can find liquidity pools higher than 20% APY. But it is necessary to avoid many scams. It is normal to see comments on Reddit of people who have lost all their money.
What are the main protocols?
We use several protocols, all of them with returns above 20%. Open your bank application. How much money do you have in cash? 20k? It is possible to get a return of $5k per year.
To our subscribers, we share alerts with the main protocols we use to prevent them from losing their money.
To sum up, stablecoins are an excellent alternative to build a robust crypto portfolio.
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See you soon.
This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any significant financial decisions.