Stablecoin pools could be the next frontier for DeFi


In times like these, when the entire cryptocurrency market is down and there is nary a sector-wide runup to be found, traders have to dig into data to see how the market dynamics may have changed to pinpoint signs of new growth. Stablecoins are the newest trend to emerge in the decentralized finance (DeFi) arena due to the resiliency they bring to the sector, especially since protocols that are more reliant on the dollar-pegged assets continue to offer token holders low-risk yield opportunities in turbulent market conditions. Possible evidence of stablecoins rising influence can be found in the difference between the decline in Ether’s (ETH) price and the total value locked in smart contracts. The price of Ether declined by 20% more from its peak than the decline in the total TVL of the DeFi sector.TVL in smart contracts vs. Ether price decline. Source: GlassnodeWhen one takes into account that most of the crypto market saw price declines on par with what Ether experienced, the fact that the DeFi TVL fell less percentage-wise than the price of Ether points to the stability offered by stablecoins. Stablecoin marketcap increases tenfoldThe total amount of stablecoins available in the market has skyrocketed from under $15 billion to more than $113 billion over the past year, led by Tether (USDT) and USD Coin (USDC), bringing an increased level of liquidity to DeFi protocols. Top seven stablecoins by market capitalization. Source: CoinGeckoThe top stablecoins are included in a large percentage of the liquidity pool (LP) pairs available on DeFi platforms, as well as being included as a standalone token that users can deposit on protocols, such as Aave, to earn a yield. This further makes them an integral part of the burgeoning DeFi ecosystem. Stablecoins have, in fact, led to the creation of a specialized subset of DeFi protocols, which focus on yield farming stablecoins and provide a safer way for investors to earn a yield while minimizing risk. Early on in the DeFi craze, protocols attracted new users and deposits by offering high yields that were typically paid out in the native token of the protocol. With a majority of DeFi tokens now down at least 75% from their all-time highs, according to data from Messari, many of the gains that users thought they made through staking and providing liquidity have evaporated, leaving little to show for the risks taken on these experimental platforms. The battle for stablecoin liquidityThe rise of successful stablecoin-focused protocols such as Curve Finance, which is a decentralized exchange for stablecoins that uses an automated market maker to manage liquidity, platforms such as Yearn.finance, Convex Finance and Stake DAO battle to offer the best incentives that will attract a larger share of the Curve ecosystem. Supplying stablecoins to Curve, or as a stablecoin LP like as a USDC/USDT pair, amounts to the blockchain version of a savings account. Many of the top protocols, including the three listed above, offer between 10% and 30% yields on average for stablecoins deposits. Related: How stablecoins stay stable, explainedThanks to smart contracts, users can make deposits to automated, compounding stablecoin liquidy protocols, reducing the stress of the daily market gyrations. Total market capitalization of the top 100 DeFi tokens. Source: CoinGeckoThe aftermath of the May 19 sell-off is still impacting investors, and in times like these, the yield opportunities provided by supplying stablecoins to DeFi protocols is an attractive way to diversify a crypto portfolio and hedge against market downturns. Want more information about diversification into the above-mentioned projects?The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

Avatar

Related Articles

- Advertisement -

Latest Articles

bitcoin
Bitcoin (BTC) $ 69,320.57
ethereum
Ethereum (ETH) $ 3,863.57
tether
Tether (USDT) $ 1.00
bnb
BNB (BNB) $ 603.78
solana
Solana (SOL) $ 165.43
staked-ether
Lido Staked Ether (STETH) $ 3,859.91
usd-coin
USDC (USDC) $ 1.00
xrp
XRP (XRP) $ 0.534790
dogecoin
Dogecoin (DOGE) $ 0.169334
the-open-network
Toncoin (TON) $ 6.34
cardano
Cardano (ADA) $ 0.462327
avalanche-2
Avalanche (AVAX) $ 37.35
shiba-inu
Shiba Inu (SHIB) $ 0.000025
wrapped-bitcoin
Wrapped Bitcoin (WBTC) $ 69,448.61
polkadot
Polkadot (DOT) $ 7.60
chainlink
Chainlink (LINK) $ 17.29
tron
TRON (TRX) $ 0.113802
bitcoin-cash
Bitcoin Cash (BCH) $ 489.50
uniswap
Uniswap (UNI) $ 11.73
near
NEAR Protocol (NEAR) $ 8.02
matic-network
Polygon (MATIC) $ 0.726347
pepe
Pepe (PEPE) $ 0.000016
litecoin
Litecoin (LTC) $ 84.72
fetch-ai
Fetch.ai (FET) $ 2.27
internet-computer
Internet Computer (ICP) $ 12.26
leo-token
LEO Token (LEO) $ 5.97
dai
Dai (DAI) $ 1.00
wrapped-eeth
Wrapped eETH (WEETH) $ 4,006.46
ethereum-classic
Ethereum Classic (ETC) $ 32.46
aptos
Aptos (APT) $ 9.11
render-token
Render (RNDR) $ 10.11
hedera-hashgraph
Hedera (HBAR) $ 0.107619
renzo-restaked-eth
Renzo Restaked ETH (EZETH) $ 3,799.12
immutable-x
Immutable (IMX) $ 2.40
mantle
Mantle (MNT) $ 1.04
kaspa
Kaspa (KAS) $ 0.140604
filecoin
Filecoin (FIL) $ 5.94
cosmos
Cosmos Hub (ATOM) $ 8.42
arbitrum
Arbitrum (ARB) $ 1.22
crypto-com-chain
Cronos (CRO) $ 0.119591
stellar
Stellar (XLM) $ 0.109968
first-digital-usd
First Digital USD (FDUSD) $ 0.998396
the-graph
The Graph (GRT) $ 0.320948
dogwifcoin
dogwifhat (WIF) $ 3.04
bittensor
Bittensor (TAO) $ 440.85
okb
OKB (OKB) $ 48.57
blockstack
Stacks (STX) $ 2.00
optimism
Optimism (OP) $ 2.61
ethena-usde
Ethena USDe (USDE) $ 1.00
maker
Maker (MKR) $ 2,847.35