Stablecoins have quickly become an essential part of the cryptocurrency industry. Not only are they viable for trading purposes, but they also make inroads in decentralized finance. Finding the right stablecoin to use, however, is not as easy as you may think.
The Stablecoin Landscape Today
No cryptocurrency enthusiast can deny the potential and impact of stablecoins on the industry. Although there are several currencies pegged to the US dollar, euro, pound sterling or otherwise, Tether's USDT remains the largest asset by market cap. Over 44.5 billion USDT are in circulation today, putting it well ahead of USDC - 11.033 billion - and BUSD - 5.045 billion. This also confirms the currencies tied to the US dollar have a dominant market position that may prove challenging to disrupt.
As the name suggests, a stablecoin is not a traditional cryptocurrency. Unlike volatile assets such as Bitcoin - which can see prices fluctuate by 5% or more per day - a stablecoin maintains its value. Tether's USDT will always have the value of $1, similar to BUSD and USDC. Due to the stable value, these assets appeal to crypto traders who want to escape crypto market volatility.
A second use case for stablecoins comes via decentralized finance. Through the various projects providing liquidity pools, users can contribute USDT, USDC, DAI or other stable assets to earn interest. In most cases, the stablecoin is one half of the liquidity pair to provide, yet it provides a less risky option than contributing liquidity via two volatile cryptocurrencies.
Last but not least, various exchanges let users stake stablecoins to earn passive revenue, akin to how a savings account works. Although the returns are lower compared to DeFi yield farming, they can still prove worthwhile for those who are risk-averse. Some platforms will let users compound their interest for maximum returns, which can prove worthwhile for some.
Contrary to what some people may think, stablecoins are also viable as a payment method. BitPay launched a worldwide stablecoin payments solution a while ago, making it easier for merchants and consumers to leverage these assets. With support for USDC, GUSD and PAX - three US-dollar pegged stablecoins - the company sends a strong signal to the e-Commerce industry. Any merchant using BitPay to process payments can accept these three stablecoins and avoid any price fluctuations altogether.
Going One Step Further
Whereas users can explore many different options with their stablecoin through various platforms, there is always room for improvement. Finding a platform that provides all of the functionality through one interface can attract more people to the crypto industry. BondAppétit is such a platform that aims to connect the real-world debt instruments with the Ethereum ecosystem to tap into new DeFi opportunities.
Introducing fiat cash-flows with fixed period income can unlock a new degree of overall liquidity in a decentralized manner. Using debt securities in the cryptocurrency industry is a novel concept, yet one that can bring tremendous opportunity to investors. At its core is a stablecoin that will maintain a value of $1 at all times. To ensure that value, the team opts for a basket of several debt obligations with variable terms, interest rates and redemption dates.
In traditional finance, debt obligations are nothing new. Their track record makes them an intriguing option for DeFi purposes, as it will prevent the BondAppétit protocol from over-collateralization. Additionally, bonds are popular because of their stable revenue. All fiat revenue is sent back to the protocol to provide extra fiat liquidity to the native governance token BAG. It is the first governance token supported by fiat liquidity gained by the collateral of the stablecoin.
To onlookers, stablecoins may not have much appeal, as their value will always remain the same. Once one begins delving a bit deeper, several use cases can become apparent, some of which may prove lucrative. That said, even stablecoins can and need to evolve. Backing such a digital asset with real money has proven viable and successful, but there are other options to explore as well.
Using bonds to back the value of a stablecoin has not been tried in the cryptocurrency industry before. It is a radical approach that can spark a renewed interest in currencies pegged to a fixed value. The estimated APYs for BondAppétit's native stablecoin are also lucrative, ranging from 491% to 542% when providing liquidity through USDap or BAG combined with USDC. Creating a higher APY can attract more institutional interest in DeFi, bringing extra liquidity to the industry, allowing everyone to benefit.