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Major DeFi projects have plans to launch stablecoins: An insight

Updated: Aug 1, 2024
Published: Apr 30, 2022
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Stablecoins are the pillars that support the world of decentralized finance (Defi) as well as crypto trading. With Tether (USDT), USD Coin (USDC), and Terra USD (UST) taking the lead in the stablecoin industry, a lot of well-known blockchain projects have confirmed the launch of their own dollar-pegged stables.

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New stablecoins in the market

After USDT, USDC, and Binance USD (BUSD) gained a lot of traction following the cryptocurrency boom of 2021, Cryptonary saw a sharp surge of interest in stablecoin projects from other decentralized protocols. One of these protocols was Terra, founded by Terraform Labs. As per data from DefiLlama, the TVL or Total Locked Volume of Terra grew from $3 million in December 2021 to nearly $35 billion in April 2022. 

The reason for this growth can be attributed to the following factors: 

  • Anchor protocol: Anchor Protocol is a decentralized lending & borrowing protocol that promises 20% returns for investors for a long time. Lenders could deposit their UST stablecoins which in turn would be provided to the borrower, who would pay interest on the same. This interest, along with the initial sum, would be returned to the lenders. 
  • As more and more people bought UST to invest in Anchor or other protocols on Terra, LUNA, Terra's native utility token, was burnt in order to create more UST. Due to this burn, the supply of LUNA declined, causing prices to jump a bit, and TVL also grew as a result.
Following the footsteps of UST, Near Protocol also welcomed its much-anticipated decentralized stablecoin known as USN. Another USD-pegged token joined the world of stablecoins. USN was launched by an independent team known as Decentral Bank, a Decentralized Autonomous Organization (DAO). Decentral Bank offers a 10% yield on USN, not a very high number as expected by the crypto community. Unlike UST, USN won't be backed by assets, but an arbitrage system will be established for the same, followed by a fund consisting of NEAR and USDT tokens.

The list of stablecoins doesn't end here. Justin Sun, the person behind the Tron blockchain, has revealed Tron's native stablecoin, USDD or Decentralized USD. USDD follows a similar arbitrage system as the USN. Another important fact to note here is that a basic "risk-free" interest rate of 30% will be rewarded to all the users.

The takeaway

The launch of stablecoins UST, USN, and USDD, are all aimed to provide investors with new ways of earning good "risk-free" yields on major decentralized finance protocols. While providing interest rates, these stablecoins will also cause a supply reduction for LUNA, TRX, and NEAR followed by a slight increase in prices. The more these stablecoins are consumed, the higher the burn rate for these native tokens.

Another important point to note here is that the 10/20/30% annual yields provided by these protocols like Anchor, Tron, and Near are often partially paid via reserves from those projects. As a result, these yields are not sustainable for a longer duration. Cryptonary recently reported that Anchor had to introduce the proposal to change the yield rate in order to implement sustainability

It seems that there might come a time when all major blockchain protocols might have a stablecoin attached to their native token but the methodology that these protocols aim to implement to give sustainable yields, that will be interesting to see. 

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