Because they can provide crypto traders an offramp during periods of volatility, and because of their integration with Decentralized Finance (DeFi), stablecoins have become a key part of the cryptocurrency ecosystem. These are essential for the overall health of the ecosystem.
Tether (USDT), and USD Coin (USDC), are currently the most popular stablecoins on the market. However, their central nature and persistent threat of regulation have caused many to abandon them and seek out decentralized alternatives.
The top 9 stablecoins according to market capitalization. Source: Messari
Binance USD (BUSD), the third-ranked stablecoin, is managed by Binance cryptocurrency exchange. DAI, the highest-ranked decentralized stablecoin has 38% of its supply supported by USDC, which raises more questions about its “decentralization.”
Investors are moving toward decentralized stablecoins as evidenced by rising market capitalizations and increased numbers of DeFi platforms integrating TerraUSD, FRAX (FRAX), and Magic Internet Money.
Let’s take a look at the key factors that drive each stablecoin’s growth.
TerraUSD (UST), an interest-bearing algorithmic stabilitycoin, is part of Terra (LUNA). It is value-pegged to the United States dollar.
To mint new UST users must interact with Anchor Protocol to either burn or lock up an equivalent amount Ether (ETH), in order to obtain collateral.
Because Ether was added as a collateral, it helped UST get into a higher gear. This allowed some of Ether’s value to migrate into Terra’s ecosystem, which resulted in an increase in UST circulating supply.
Anchor now has 1/bETH available on their web app. Now you can borrow $UST to buy bETH. This is a wrap version of the stETH derivative. @LidoFinance and we have teamed up to offer a guide on how to use bETH in Anchor. https://t.co/T5KkGNNAYE
Anchor Protocol (@anchor_protocol), August 13, 2021
Due to the rapid growth of UST the Terra network has recently surpassed Binance smart Chain in terms of total valued locked (TVL), which is now at $17.43 Billion according to data from DefiLlama.
Terra was also adopted by Curve stablecoin ecosystem, which has helped it spread across many DeFi protocols. This gives UST holders an additional way to earn a return in addition to the 19.5% annual percentage yield offered to Anchor Protocol users.
FRAX (FRAX) is a first-of-its-kind fractional-algorithmic stablecoin developed by Frax Protocol. It has a partial backing of collateral, while the rest is stabilized algorithmically.
FRAX’s growth is a result of its adoption by the DeFi community in multiple well-known projects. Decentralized autonomous organizations (DAOs), voting to support the stablecoin within their ecosystems or treasuries, is the real story.
FRAX was first adopted by OlympusDAO as collateral. It could be bonded to get the native OHM token. It was also the stablecoin of preference in the TempleDAO protocol.
FRAX was added on Convex Finance (CVX), and immediately thrust into ongoing Curve Wars, where a few major DeFi protocols are fighting to accumulate CVX (CRV), to gain voting power over Curve’s network and increase their stablecoin yield.
The @fraxfinance Convex soft-launch has begun.https://t.co/oZ9WKZxNXR Deposit + convert $FXS to $cvxFXS
December 22, 2021 — Convex Finance (@ConvexFinance).
After Tokemak members voted for FRAX and Frax Share to its Token Reactor this week, Curve Wars got a new participant. They pledged to “bring fight to a huge new scale.”
Magic Internet Money
Magic Internet Money (MIM), a stablecoin that is collateral-backed, was issued by Abracadabra.Money. This coin is unique because it is “summoned into existence” by users who deposit one of 16 supported cryptocurrency in “cauldrons”, which support MIM.
The amount of money that can be borrowed from assets supported by Abracadabra is limited. This is part the protocol’s attempt to avoid MakerDAO (DAI) problems. The presence of too many central stablecoins, and the history with catastrophic liquidations during volatility market conditions are two examples.
Wrapped Ether (wETH), Ether Shiba Inu, Shiba Inu(SHIB), FTX Tokens (FTT), and Fantom are some of the most popular tokens that can be pledged as collateral for minting MIM.
! Our first zero-interest lending market is here! 1. Provide $WETH as collateral to mint $MIM, or leverage your $ETH. – Interest 0%, Liquidation Fee 44%, LTV 90%, Borrow Fee 0.5%. What are you waiting to do? Mint now!https://t.co/N3r54iPo7n
— (@MIM_Spell) December 31, 2021
MIM was also integrated into Curve Finance pools, further highlighting Curve’s important role in stablecoins in the DeFi ecosystem. This is in addition to the Curve Wars incentives.
MIM’s cross platform and centralized exchange integration have increased its circulating supply by $1.933 million, making it the sixth most valuable stablecoin according to market capitalization.
Although the value of these decentralized stablecoins may be a fraction of the USDT and USDC they will continue to grow their market share as decentralization advocates choose them over their central counterparts.
You would like to learn more about investing and trading in the crypto markets?
Adoption of TerraUSD (UST), backs LUNA’s ascension at a new all time high3 reasons why Convex Finance surged 215% to hit new all time highConvex Finance launches on Partisia blockchainMagic Internet Money races to $1B and sets its sights on MakerDaoWill US regulators shake up stablecoins to become high-tech banks? You should do your research before making any investment or trading decision.