The role of stablecoins in decentralized finance. The importance of operating in dollars without restrictions. Advantages of DAI, USDC and USDT.
Currencies such as DAI, USDC or USDT function as «cryptodollars», due to their parity with the US currency.
Advantages of stablecoins
USDT, USDC and DAI maintain a fixed price around the US dollar.
As they are not fiat currency, there is no purchase limit regulated by government decisions.
They allow you to protect value against inflation and the devaluation of local currencies.
They can be deposited into DeFi to earn predictable returns in crypto.
No bank account is needed to trade stablecoins.
They are easy to store and transfer at any time.
USD Coin
USDC features: fiat currency reserve, international audits, the ease of converting USD Coin to dollars and its price stability.
USD Coin is a stablecoin linked to the US dollar, which is supported by the companies Coinbase and Circle, two of the largest and most recognized companies in the crypto world.
Each USDC is backed by a reserve of fiat money, the majority of which is in dollars and short-term US Treasury bonds. USDC operations are constantly assured by these companies and by external auditors with international recognition. This ensures its parity with the dollar permanently.
Since its launch in 2018, USDC very effectively maintained its stability around the dollar.
USD Coin can even be directly exchanged for dollars that are transferred to the user’s bank account, directly from the Coinbase app. The service is available in 85 countries, among which Argentina is not included.
Since its launch, USDC has had imperceptible variations: since 2018 its price has only dropped from 0.99 twice, and its minimum was 0.97.
If you want to know more about USD Coin, you can review our Complete Guide to stablecoins.
DAI
January 16, 2022
Smart contracts and the regulation of the DAI price. How its value compensation mechanism works. The firmness of DAI stability over time.
DAI is a stablecoin whose value is linked to the US dollar, and is part of the MakerDAO decentralized development community.
DAIs are backed by a CDP (collateralized debt position) smart contract, a type of smart contract that guarantees system and price stability. And it is based on the Ethereum blockchain, so all the information about the project and its operation is public.
What distinguishes DAI from other stablecoins is its value clearing mechanism, which does not involve any central organization. On the other hand, the smart contract already contemplates from its origin all the variables that allow it to function.
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DAI has its own system to avoid volatility, which ensures minimal variation.
Under this programmed compensation, if the price of DAI falls below the dollar, users are rewarded for holding their DAI through an interest rate, and the cost of creating new DAI also increases. In this way, issuance is discouraged, scarcity is generated, and the price stabilizes again at U$D 1.
If the price of DAI exceeds the dollar, the opposite occurs. The creation of new DAI is made cheaper and the compensation rate is lowered, which stimulates the creation of DAI and lowers the price.
In any case, these variations are minimal: during 2021, the price always remained between 0.99 and 1.01, with just fractions below or above those values.
If you want to know more about DAI, you can review our Complete Guide to stablecoins.
