Stablecoins are nothing new. They have been around for almost as long as cryptocurrencies, with the first bona fide stablecoin launched in 2014. Since then, they have been largely used by traders and investors looking for a temporary reprieve from volatility.
But it was only relatively recently that stablecoins began to evolve to provide users with more than simple stability or a fiat alternative, but viable entry into the world of cryptocurrency. This evolution mainly involves improvements in the way they are supported and used, making modern stablecoins much more capable than some of the earliest examples.
They are supported in a different way
BitUSD, the very first stablecoin ever launched on a blockchain, is not like many popular stablecoins these days. Rather than being directly backed by fiat currency held on an account by a custodian, it was instead backed by BitShares (BTS) tokens.
Rather than simply being backed 1: 1 with the value of BTS in USD, users had to get too much collateral by depositing at least twice the value of BTS than the amount of BitUSD they wanted to receive. This was an impractical solution, as few people were willing to provide twice as much collateral just for temporary stability.
But things are rapidly changing as newer, more capable stablecoin emerges, with more innovative stability fixes and better usability. Today’s stablecoins now have a range of smart support mechanisms, making them better suited to modern crypto users.
BondAppétit’s USDap stablecoin is a poignant example of this. Rather than simply backing each USDap with USD, these are instead backed by real debt obligations. These fixed income bonds generate a return that ensures that the collateral is always higher than the value of a circulating USDap.
Other stablecoins, such as TerraUSD (UST), instead reiterate the formula outlined by BitUSD, allowing users to collateralize their stablecoins with volatile assets, but without requiring too much collateral. With TerraUSD, users simply need to burn 1 USD worth of LUNA tokens at current market rates to hit 1 UST.
As decentralized financing continues to gain in popularity, users are likely to continue demanding more capable stablecoin solutions, helping both existing and upcoming stablecoin issuers continue to innovate to meet their evolving demands.
Stablecoins aren’t just for stability
In the earliest days of cryptocurrency, stablecoins had one clear purpose: to enable holders to temporarily or permanently opt out of market volatility.
But while most stablecoins achieve just this, the growing interest in personal finance, yield farming and blockchain-based savings has highlighted the need for a stable solution that is also capable of generating revenue. After all, the cryptocurrency industry is associated with fantastic returns for investors, and this factor is a major driver for many users.
But while most stablecoins can be used to earn returns by participating in various revenue-bearing DeFi apps and centralized savings platforms such as Crypto.com and Nexo, we are now starting to see stablecoin options with revenue-bearing properties baked into protocol. level.
These include the aforementioned USDap, which generates a return for users participating in a USDap / BAG liquidity pool on an automatic market maker (AMM) platform such as Uniswap. These rewards are paid in BAG tokens, the native governance token of the BondAppétit ecosystem. This both helps to maximize liquidity for both USDap and BAG, and also provides holders with a stable return.
BXTB, a blockchain-based gaming technology provider, offers another type of revenue-bearing stablecoin – one that uses a combination of two tokens (CHIP + yBXTB) to generate a return for network participants. It achieves this by distributing a fraction of the CHIP transaction fee among yBXTB holders. The yBXTB token can be obtained by storing CHIP stablecoins and then using them to earn these rewards.
Additionally, TerraUSD (UST), the LUNA-collateralized USD stablecoin, is also benefiting from a revenue-bearing solution via Anchor Protocol – a non-licensed savings protocol for the Terra blockchain.
With more and more stablecoins offering secure, reliable returns for holders, those with a lower risk appetite or weak exposure to cryptocurrencies may soon be tempted to enter the industry. As a result, stablecoins represent a low-risk way of gaining exposure to the benefits of cryptocurrencies, allowing the industry as a whole to grow.