The persistent threat of stablecoin regulation and the centralized nature of USDT and USDC are stimulating the growth of decentralized stablecoins. Digital coins that are pegged to USD appear to be under serious threat as US Fed had a strong discussion to regulate such assets. Interestingly, decentralized stablecoins such as UST, MIM, and Frax have been thriving to create a whole new economy in the sector.
The maturation of the decentralized stablecoin ecosystem is the need of the hour to manage the portfolio in case of heavy volatility. Terra USD (UST) has recently become the most prominent stablecoin. Besides, traders pivot toward other decentralized stablecoins like Magic Internet Money (MIM), and Frax has been on the rise. Furthermore, Convex Finance (CVX) looks vigorous with its shift in focus towards a stablecoin ecosystem.
Terra USD (UST):
Terra has launched a stablecoin known as UST that is pegged to US dollars. Interestingly, the value of the token is backed by Terra’s native token Luna. If the UST value plummets with respect to the dollar, then traders can sell UST for dollars to earn income. Selling those UST results in burning those tokens, thereby depreciating the supply and escalating USTs value inclined with USD. If the value of UST shoots too high then traders are supposed to bridge communication with Anchor protocol to swap LUNA tokens for UST.
Convex Finance (CVX) :
The growth of the Stablecoin ecosystem appears to be very impactful for the crypto verse in recent times. One such protocol CVX has gained over 215% in December followed by its constant efforts to uplift the stablecoin ecosystem. The tokens intend to help investors boost CRV staking to augment their yields. Recently, the platform proclaimed that it would be broadening beyond its support to Curve Finance by expanding its support for the emerging Frax finance stablecoin platform.
Frax (FRAX) :
Frax protocol has launched a fractional-algorithmic stablecoin. It is partly supported by collateral and partially stabilized algorithmically. The interesting saga of its evolution is because of its widespread adoption by the DeFi community. The majority of the popular projects and DAOs (decentralized autonomous organizations) voted to include backend support for the stablecoin across their treasuries.
Convex Finance adopted FRAX on December 22, 2021, which has pushed the DeFi community to accumulate more CVX. In the same time frame, CVX surged over 100%. In addition, OlympusDAO added FRAX as a form of collateral.
Collectively, with bears being on the periphery of 2022, Stablecoins have the great opportunity to expand to their full-fledged potential. Notably, the aforementioned assets appear to be ahead of the game as a community is already in rush to accumulate.
Source: https://coinpedia.org/defi/decentralized-stablecoins-to-prosper-in-2022/