Crypto companies and enthusiasts always throw unwarranted hype on any situation. The stock market is healthy, crypto is doing better. The stock market goes down or inflation skyrockets, crypto is the only way out. These hyped cryptos and DeFi want you to believe that they always turn a profit, it’s as if the crypto winter and failure of multiple exchanges and DeFi implementations over the past few months never happened! If Bloomberg, Coindesk, CoinTelegraph, Fortune, and The Motley Fool all make good arguments as to why DeFi is in big trouble, shouldn’t we declare it our savior? Not to overwhelm, but I also wrote here and here months ago about the technical problems surrounding these topics. Why CBDC might be needed despite the availability of stablecoins, maybe TerraUSD (UST) $60bn 4-month default rings a bell?
There has been a lot of talk about central bank digital currencies (CBDCs), but if we already have deflationary stablecoins in the ecosystem whose value can be pegged to collateral like other cryptocurrencies or even traditional assets, what is the real benefit of a CBDC? ? The whole idea of a stablecoin is to offer a crypto asset whose value is not susceptible to extreme volatility. Most stablecoins achieve this stability by pegging their value to a fiat currency like the US dollar, or a basket of assets that could include fiat and cryptocurrencies.
Additionally, most stablecoin projects also incentivize people to stay invested in the ecosystem by offering derivative versions of assets they’ve locked into liquidity pools, allowing investors to get involved with other DeFi protocols, even if their main ones assets remain blocked. They can earn generous interest and still use derivatives to borrow from us, or earn returns elsewhere, augmenting their initial investments.
DeFi offers new avenues for economic growth, restoring power to everyone, not just the super-rich. Because DeFi protocols are not tied to a nation-state currency and instead fuel the broader development of the crypto-powered economy, they can provide generous incentives to save, earn, and borrow with very little initial investment capital.
overview after Tim SloanVP, Payment Innovation at Mercator Advisory Group
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