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Traditional and Decentralized Finance Meet in Stable coins

Stablecoins, a term referring to cryptocurrencies that are pegged to fiat currencies, such as the U.S. dollar, first came to the scene in 2014. Tether (USDT), originally called realcoin, was launched as the first stablecoin that year. At the time, it was a very unique product, designed to bring the stability of the dollar (and other government-backed currencies) to the cryptocurrency ecosystem.

Today, there are three main types of stablecoins: fiat-backed coins, crypto-backed coins and algorithmic coins. Fiat-backed stablecoins are cryptocurrencies that are collateralized 1:1 with a specific fiat currency. Crypto-backed stablecoins are backed with a specific cryptocurrency, while algorithmic stablecoins are stablecoins that rely on a complex algorithm or algorithms to match the price of the cryptocurrency to that of a specific fiat currency.

What are the use cases for stablecoins?

Safe Haven Asset: Stablecoins have a value that is designed to be stable over any period. This feature makes stablecoins an ideal safe haven asset because, unlike cryptocurrencies like Bitcoin that can fluctuate dramatically in price every day, an individual using stablecoins to store value see no risk of loss, especially because they have full custody of their assets.

Trading: Fiat onramps and offramps cost fees, making stablecoins a prime solution for exchanges and institutional traders who want the ability to reduce crypto exposure without fully cashing out.

Payments: With Walmart unveiling a patent for its own stablecoin, payments are looking to be one of the primary use cases in coming years. Businesses benefit from accepting stablecoins as payment because, in doing so, they circumvent the 2–3% transaction fees that accompany the intermediary processing fees by financial institutions.

Payroll: In November 2018, Japanese shipping company Nippon Yusen Kaisha introduced plans to pay its workers using USD-pegged stablecoins, marking a first in using stablecoins to deliver payroll.

Lending: Stablecoin lending is currently one of the most high-yield opportunities for debt investors, offering double-digit interest rates. This demand is fueled by massive institutional demand for stablecoin loans, which ties back to stablecoins’ use in trading.

Opportunities with stablecoins

Stablecoins give an extraordinary chance to guides and financial backers. While they are intended to be steady and not unpredictable, they can’t and ought not be utilized as a substitution for cash. What’s more in spite of the fact that it would be incredible to send bank stores to a stablecoin position to create an appealing pace of revenue (particularly during times of expansion), it’s memorable’s vital that these items are still new and doubtful.

Bridging TradFi and DeFi

As I would see it, the introduction of stablecoins made the extension that will associate the customary monetary business sectors to the wild universe of crypto markets. I’m more amped up for the eventual fate of DeFi than I was about Bitcoin in 2012. As this new DeFi world develops, guides should be taught on the dangers and openings this advancement will make. Exploring the following not many long periods of the TradFi/DeFi environment consolidating could give openings dissimilar to anything we’ve seen.

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