Stablecoins have become a fundamental part of the cryptocurrency ecosystem in recent years, as they can offer crypto traders an offramp in times of volatility and their widespread integration with decentralized finance (DeFi) occurs. These are necessary for the health of the entire ecosystem.
Currently, Tether is (USDT) and USD coin (USDC) are the dominant stablecoins in the market, but their centralized nature and the ongoing threat from stablecoin regulation have led many in the crypto community to avoid them and seek decentralized alternatives.
Top 9 stablecoins by reported market capitalization. Source: Messari
Binance USD (BUSD) is the third-tier stablecoin and is controlled by the Binance cryptocurrency exchange. DAI, the best placed decentralized stablecoin, has 38% of its supply covered by USDC, which in turn raises questions about its “decentralization”.
The trend among investors towards decentralized stablecoins can be seen in the increasing market capitalization and the number of DeFi platforms that integrate TerraUSD (UST), FRAX (FRAX) and Magic Internet Money (MIM).
Here’s a look at some of the factors that help any stablecoin grow.
TerraUSD
TerraUSD (UST) is an interest-bearing algorithmic stablecoin that is part of the Terra (LUNA) Ecosystem and is designed to remain pegged to the US dollar.
To mint new UST, users must interact with the Anchor Protocol and either burn an equivalent value of the network’s native LUNA token or lock an equivalent amount of Ether (ETH) as safety.
The addition of Ether as a form of security really helped get things into high gear for UST, as some of the value held in Ether was migrated to the Terra ecosystem, resulting in an increase in circulating UST supply.
1 / bETH is now live in the Anchor web app!
You can borrow now $ UST against bETH, a packaged version of the stETH staking derivative for ETH 2.0.
We have teamed up with @LidoFinanzen to provide a guide on how to use bETH on Anchor. https://t.co/T5KkGNNAYE
– anchor protocol (@anchor_protocol) August 13, 2021
As a result of UST’s growth, the Terra network recently Binance Smart Chain exceeded regarding the Total Value Locked (TVL) of the protocol, which, according to DefiLlama, is now at $ 17.43 billion.
Terra was also adopted by the Curve stablecoin ecosystem, which further aided its dissemination via numerous DeFi protocols. This also provides another way for UST holders to earn a return on top of the 19.5% annual percentage rate of return (APY) for users who use their UST in the Anchor Protocol.
FRAX
FRAX (FRAX) is a unique fractional algorithmic stablecoin developed by Frax Protocol. It is partially backed by collateral and the remaining part is algorithmically stabilized.
The real story behind FRAX’s growth begins with its adoption by the DeFi community in several well-known projects and Decentralized Autonomous Organizations (DAOs) who vote to support the stablecoin in their ecosystems and treasuries.
FRAX was recognized at an early stage by the OlympusDAO rebase protocol as a form of security that could be tied to get the platform’s native OHM token. It also became the stablecoin of choice within the recently launched TempleDAO protocol.
On December 22, 2021, FRAX was added to Convex Finance (CVX) and was immediately bumped into the ongoing Curve Wars, in which a handful of key DeFi protocols battle to rally CVX and Curve (CRV) to gain voting power over the Curve- Network and increase their stablecoin yield.
the @fraxfinance The convex soft start has begun.https://t.co/oZ9WKZxNXR
Deposit + convert $ FXS to $ cvxFXS
– Convex Finance (@ConvexFinance) December 22, 2021
This week, Curve Wars got a new entrant after Tokemak members voted to add FRAX and Frax Share (FXS) to their Token Reactor. swear to “take the struggle to a massive new dimension”.
Magical internet money
Magic Internet Money (MIM) is a collateral backed stablecoin issued by a popular DeFi protocol called Abracadabra.Money. What sets this coin apart is that it is “conjured” when users deposit a 16 supported cryptocurrency into “cauldrons” that support MIM.
There are restrictions on the amount that can be borrowed of the assets supported on Abracadabra, and this is part of the protocol’s efforts to avoid MakerDAO (DAI) problems. Namely the presence of too many centralized stablecoins and the history of catastrophic liquidations during market volatility.
Some of the most popular tokens pledged as security To emboss MIM include packaged ether (wETH), ether, Shiba Inu (SHIB), FTX token (FTT) and Fantom (FTM).
♂️!
Our first interest-free credit market is here!
1️⃣ Deploy $ WETH as security and mint $ MIM or use your $ ETH!
– interest 0%
– liquidation fee 4%
– LTV 90%
– loan fee 0.5%
What are you waiting for Now mint!https://t.co/N3r54iPo7n
– ♂️ (@MIM_Spell) December 31, 2021
MIM has also been integrated into the Curve Finance pools, further underscoring the important role of Curve for stablecoins within the DeFi ecosystem and underscoring the incentives for participating in the Curve Wars.
MIM’s cross-platform and centralized exchange integration, including its long list of collateral options, has increased its circulating supply to $ 1.933 billion, making it the sixth-ranked stablecoin in terms of market cap.
Although the value of these decentralized stablecoins is only a fraction of the value of USDT and USDC, their market share is likely to continue to grow in the months ahead as advocates of decentralization choose them over their centralized counterparts.
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