Stablecoins are cryptocurrencies pegged to a fiat value (typically one US Dollar) and are backed partially, fully, or algorithmically by underlying assets. They are created to serve as a tool for DeFi investors or traders to hold cryptocurrencies in a more traditionally stable form.
DeFi Investors also use stablecoins to stake and farm in times of volatility or market downturns. Stablecoins offer relatively low returns compared to most other non-stable crypto assets but are considered safer from a price risk standpoint.
Feeder Finance Stablecoin Search
There are hundreds of different stablecoins within all blockchains, but only a handful are widely adopted in the industry. The following are ones new DeFi investors should be aware of:
- $USDT : One of the first and most widely used USD stablecoin throughout all networks. A USD reserve backs its value; however, as of the time of writing, is being disputed by many parties as potentially not fully backed
- $DAI : A USD stablecoin run by a decentralized autonomous organization (DAO) of the Maker protocol. Its value is backed by Ethereum locked as collateral inside the MakerDAO smart contracts. This is the largest decentralized stablecoin in crypto as of the time of writing. The value of $DAI may not always be exactly 1 USD, but the peg has been relatively stable over time
- $VAI : A USD stablecoin run by a Venus protocol decentralized autonomous organization (DAO). Its value is backed by collateral locked inside the Venus protocol smart contracts. $VAI is predominantly used within the Binance Smart Chain ecosystem as Venus is the network's largest lending/borrowing protocol. As with $DAI, the value pegged may not always be exactly 1 USD; however, it is relatively stable close to that range.
Stablecoins, as the name suggests, are expected to have stable value. This means that it could be a safe haven for DeFi investors in turbulent times. Investors tend to rebalance their portfolios from more volatile crypto assets into stablecoins when the future is unclear, or the market turns south.
Nevertheless, holding stablecoins does come with passive returns, both from staking single tokens and providing liquidity to farm for extra returns. Typically, however, farming stablecoins with non-stablecoins offer higher returns, especially when paired with native network token (such as ETH or BNB) thanks to the large amounts of trading fees generated. Investors need to keep in mind, however, that LP token paired with non-stable means some of the stability of a single stablecoin is lost, but the investor is rewarded with additional returns for taking that risk.
Feeder Finance offers many products with AutoStaking and AutoFarming for multiple stablecoins and DeFi investors can simply search "stable" in the search bar (or click here) to explore products. Earning, in some cases, over 60% APY while holding a stablecoin is a relatively safe way of generating passive income in DeFi.
Learn more about Farming and Staking through the links below:
Disclaimer: Nothing written here should be considered investment advice. The article is intended for informational purposes to guide investors only. For investment advice, please consult a licensed professional.