Decentralized stablecoins are extremely attractive to DeFi investors

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2022-01-11 23:02:19

The threat of stablecoin regulation and the centralization of USDT and USDC is making decentralized stablecoins like MIM, FRAX, and UST attractive to DeFi investors.

Stablecoins have emerged as an integral part of the crypto ecosystem over the past few years due to their ability to provide traders with a breakthrough during times of volatility and their widespread integration with DeFi, greatly essential for the entire ecosystem.

Currently, Tether (USDT) and USD Coin (USDC) are the dominant stablecoins in the market, but their centralized nature and the threat of stablecoin regulation have led many investors to move away and seek stablecoins. decentralization instead.

Top 9 stablecoins by market capitalization | Source: Messari

Binance USD (BUSD) is the third largest stablecoin and is controlled by the Binance exchange. DAI, the largest decentralized stablecoin, has 38% of the supply backed by USDC which, again, raises questions about its “decentralization”.

The turn of investors into decentralized stablecoins can be attributed to the growing market capitalization and number of integrated DeFi platforms TerraUSD (UST), FRAX (FRAX) and Magic Internet Money (MIM). ).

Here are some factors that support the growth of each stablecoin.


TerraUSD (UST), a profitable algorithmic stablecoin, is part of the Terra (LUNA) ecosystem and is designed to maintain value in US dollars.

To generate a new UST, users are required to interact with the Anchor Protocol and burn an equivalent amount of LUNA worth of the network or lock an equivalent amount of Ether (ETH) as collateral.

The addition of Ether as a form of collateral really helped propel things high for the UST as it allowed some of the value held in Ether to move into the Terra ecosystem and lead to an increase in value. increase the circulating supply of UST.

UST’s growth has resulted in the Terra network surpassing Binance Smart Chain (BSC) in total value locked (TVL) on the protocol, which currently stands at $16.44 billion, according to data from DefiLlama.

Source: DefiLlama

Terra has also been adopted by the Curve stablecoin ecosystem, which supports distribution across multiple DeFi protocols, giving UST holders another way to profit with a 19.5% APY offered to staking users. Their UST on Anchor Protocol.


FRAX (FRAX) is the first fractional algorithmic stablecoin, developed by Frax Protocol. It is partially backed by collateral and the rest is algorithmically stabilized.

The real story behind the development of FRAX starts with the DeFi community accepting it in many popular projects and decentralized autonomous organizations (DAOs) voting to add support for it in the ecosystem. their state and treasury.

FRAX was soon adopted by OlympusDAO’s Rebase protocol as a form of collateral that could be linked to the platform’s native token, OHM. It also became the stablecoin of choice in the recently launched TempleDAO protocol.

On December 22, 2021, FRAX was added to Convex Finance (CVX) and immediately entered the ongoing Curve Wars, where several major DeFi protocols were scrambling to accumulate CVX and Curve (CRV) for a gain voting rights on the Curve network and increase their stablecoin returns.

This week, Curve Wars saw a new participant after Tokemak members voted to add FRAX and Frax Share (FXS) to its Reactor Token, vowing to “take the war to a new grand scale.” .

Magic Internet Money

Magic Internet Money (MIM) is a collateral-backed stablecoin, issued by the popular DeFi protocol Abracadabra.Money. What is different about this coin is that it is “summoned” in presence when users deposit 16 supported cryptocurrencies into the MIM-enabled “cauldron”.

Of course, there is a limit to the amount that can be borrowed from assets supported on Abracadabra, and this is part of the protocol’s effort to avoid the problems faced by MakerDAO (DAI). Specifically, the presence of too many centralized stablecoins and the history of liquidation disasters during volatile market times.

Some popular tokens available for MIM minting collateral include wrapped Ether (wETH), Ether, Shiba Inu (SHIB), FTX Token (FTT), and Fantom (FTM). According to Twitter account @MIN_Spell:

“Our first zero-interest lending market is live. Offer WETH as collateral and mint your MIM or leverage your ETH!

– 0% interest
– 4% liquidation fee
– LTV 90%
– Loan fee 0.5%”.

MIM has also been integrated into the pools on Curve Finance, further highlighting Curve’s important role for stablecoins in the DeFi ecosystem and underlining the motivations for participating in Curve Wars.

MIM’s cross-platform and centralized exchange integration, including a long list of collateral options, boosted the circulating supply to $1.933 billion, making it the sixth-largest stablecoin by capital marketization.

While the amount of value held in these decentralized stablecoins is only a fraction of that of USDT and USDC, they are likely to continue to see market share increase in the coming months when picked up by those decentralization proponents instead of their centralized counterparts.


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