Although inflation seems to be finally slowing down, interest rates are still rising.
This is painful for many reasons, but for crypto bros, it basically means like risky assets Bitcoin And Dogecoin They are not as attractive as conservative bonds issued by the US government.
But not a complete wash.
In fact, the DeFi The sector–especially stablecoin providers–is getting special moves to take advantage of the current high interest rates.
Yes, folks, it's a stable coin return that earns interest. This time, however, things are looking very different with the Tera Anchor Protocol.
From Maker's DAI to Frax Finance's sFRAX, the arena is buzzing with different flavors of this new stablecoin.
sDAI (the name for the interest-bearing version of Stagacoin) and sFRAX both generate their output from T-Bills and other real-world asset investments, which are like corporate debt.
And with those idled US dollars up to 5% “safe” yields, investors are pouring in.
Spark Protocol, the project that powers Maker's sDAI push, has announced that the token has reached 1 billion in total circulation.
Not just dollar coins either; Euro-pegged stablecoins like the Angular protocol are also coming into play. Angle's agEUR is yielding 4% from a bag of real world assets.
Still doubting anything related to productivity in crypto?
Pablo Veirat, founder of Angle, told Decrypt, “If you don't understand where the product is coming from, you have to worry about offensive products. A stablecoin is a Ponzi if it relies on internal collateral assets.
As for AgEUR, it generates its yield from a representation of European government bonds. In other words, it is boring government debt.
And while some other stablecoins are making a profit through their ETH holdings, Weirath says he's not a fan.
He told Decrypt that “I don't like methods that offer a yield on the ETH that is held because there is little to create anything of value there. “And it often comes down to dumping the stETH yield to find another asset worth US dollars.”
Still, alternative designs—especially those that don't rely on interest rates—could enjoy a boost once the Fed starts cutting rates.
“Currently, interest-bearing stablecoins such as sDAI, whose yields primarily come from US Treasuries, will similarly decline,” said 21.co analyst Tom Wan. However, others such as eUSD, USDe, whose product comes from stETH or other ETH LSTs can maintain the level of demand for users.
In the meantime, however, this product is currently enjoying a very high yield from one of the most powerful central banks in the world.
The irony of all this, of course, is that the industry now appears to be profiting from centralized governments and their financial policies, a dynamic that Bitcoin proponents wanted to break away from.
This makes most of these stablecoins vulnerable to any changes in monetary regimes.
Monerium co-founder and CTO Gísli Kristjánsson said “When stablecoin issuers start paying interest, they become dependent on the interest rate market for the currency that the stablecoin is denominated in.” “The biggest influence in this market is the interest rate on overnight deposits from the central bank.”
Although Kristjansen points out that there is more risk compared to stable mint varieties that don't yield more than vanilla, he is aware of their “advantages.”
“One of the main advantages is the transparency of the assets and liabilities of the protocols, which can be audited,” he said. “Since the data is standardized on the blockchain, tools can be developed to monitor the health of the protocol in real-time. This represents a significant improvement over traditional banks' quarterly financial reports.”
And this is the main takeaway.
Instead of completely rejecting traditional finance, crypto is emerging as a dynamic new tool to make money better and more transparent, regardless of market conditions.
It is certainly far from conclusive. But it's definitely progress.
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