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In recent years, stablecoins have become a global phenomenon, growing from under $10 million at the start of 2017 to over $100 billion today. USD stablecoins act as a store of value for countries such as Argentina and Lebanon which suffer from currency crises, allowing easy peer-to-peer transfers, payments, cryptocurrency trading, and yield generation with the U.S dollar.
The use case of stablecoins have become compelling enough that governments around the world are actively discussing the potential issuance of their own central bank digital assets and digital currencies (CBDCs).
Stablecoins are tokens with values pegged to a separate asset that is seen as stable, such as fiat currencies or gold. The top stablecoins are pegged to the U.S Dollar, with household names such as USDC, USDT, Binance USD (BUSD), and DAI. For this reason, they’re sometimes called fiat-backed stablecoins.
This makes stablecoins distinct from assets like Ethereum and Bitcoin, which are not pegged to stable assets and can experience significant price volatility based on market demand and other factors.
While these stablecoins serve the same function, some stablecoin offerings are best for certain use cases, while others specialize in other areas. Let's expand on the different types of stablecoins and risks involved with each.
Collateralized stablecoins are tokens that are redeemable for the underlying assets which back them. USD coin (USDC) in particular is redeemable 1:1 for US Dollars, with their issuer Circle keeping a mixed reserve of cash and US Treasuries.
Uncollateralized or partially collateralized stablecoins may be backed by a mix of assets and algorithms. An example would be UST, which was redeemable for $1 worth of LUNA. However, there was no guarantee that there was constant demand or liquidity for LUNA. As panic ensued, the price of LUNA dropped too rapidly and UST was essentially redeemable for nothing of value.
Though this shows that fully or over collateralized stablecoins are much preferred over uncollateralized ones, examining the quality of collateral behind all of them is an additional step that cannot be skipped.
After the shock of Terra’s collapse in May 2022, investors looking for yield strategies using stablecoins have become more risk-averse in the short term. The change in landscape has made such investors flock back to the safer and proven stablecoins in the crypto markets, as we will highlight below.
USDC, which is issued by Circle, is backed by a mix of US Treasuries and cash to help maintain a stable value. Publishing monthly attestations on their reserves, Circle leads the pack on transparency among centralized stablecoins. Its ease of redemptions for USD on Coinbase also serves to bolster its popularity among the western audience.
Dai (DAI) is an over collateralized stablecoin backed by a mix of centralized stablecoins and other crypto assets, such as USDC and ETH. For example, a Dai vault could require a user to stake $1000 worth of ETH to mint $500 worth of Dai. If the value of the ETH collateral goes under $750, the protocol sells the ETH for DAI on the open market, giving the user back any leftover ETH, and takes a fee.
Being in operation for almost 5 years, DAI has shown resilience with their liquidation systems and smart contract security, making it the most trusted DeFi stablecoin with no close second. DAI currently has a stablecoin collateral ratio of >80% as of writing and is the largest DeFi stablecoin by market cap.
USDT, which is issued by Tether, is backed by a mix of investments, loans, bonds, cash and cash equivalents. Being the oldest and largest stablecoin by market capitalization, Tether (USDT) has survived multiple stressful market events, and proven itself over the years. In order to compete with USDC in terms of transparency, Tether has started publishing quarterly reports on their reserves.
OUSD is a yield-generating stablecoin collateralized by USDC, DAI and USDT. OUSD uses these collateral to deploy them into strategies that are analyzed, created and audited by the engineering team. This yield is directly accrued to OUSD holders, turning their wallet into a crypto savings account.
Using the safest stablecoins and blue-chip DeFi protocols, OUSD is the safest yield-bearing stablecoin on the market.
Liquity Dollar is a decentralized stablecoin made in response to the growing centralization of Dai's backing. Unlike Dai, which can be backed by USDC and other centralized assets, LUSD is solely backed by ether.
While LUSD is regarded as a safe stablecoin to use, it's slightly more volatile than other options due to its smaller market capitalization. It's not uncommon for LUSD to trade plus or minus three percent from its soft-peg of $1.
The benefit of DeFi stablecoins like OUSD and DAI are that operations or processes are on the blockchain and thus transparent by default. Whenever funds are moved, liquidations are happening, or strategies are executed, users can simply refer to the Ethereum blockchain to verify activity.
The best stablecoin interest rates are ones that fit the users’ risk profile. There is no free lunch in this world, especially for earning yield. Extra yield is generated either by taking on more risk, or intelligent active research and management.
Users who have high risk appetites can invest with algorithmic stablecoins such as USDD for yield ranging from 9% to 50%. Centralized lending platforms offer up to 10% on base yields for USDC, USDT and DAI, but note that most users remain skeptical after Celsius and Voyager’s bankruptcies.
With more than $10 billion dollars worth of value locked in blue-chip DeFi protocols, many users have shown preference for lower risk and transparency in spite of lower yields. Base yields for lending on AAVE and Compound range from 3% to 8% for USDC, DAI and USDT. By building strategies on top of blue-chip DeFi protocols, OUSD edges out a trailing 30 day average yield around 8.5%.
Crypto investors looking to make passive income must understand that due diligence must be done on stablecoin issuers and the platforms they use to earn interest on. Crypto exchanges and platforms that offer high crypto interest rates during bear markets should be scrutinized closely. Furthermore, the variable nature of interest rates and market conditions require users to keep track of their strategies and holdings.
Users who want to earn interest with another party actively managing their yields for them, while having the option of reviewing transparent operations and strategies can do so with OUSD. As compared to centralized platforms, which have shown opaque and negligent trading and lending activities, all of OUSD yield strategies are executed on-chain.
With backgrounds from Google, Paypal, Meta, Ethereum, etc, the engineering team actively creates, manages, monitors, and deploys strategies for OUSD holders. Daily interest is credited into OUSD holders’ wallet, with no lock-ups required. Users whose appetites fit low risk strategies and prefer to passively earn yield should be strongly recommended to utilize OUSD.
If that sounds like you, you can purchase OUSD through a DEX aggregator, the app, or crypto exchanges such as Kucoin and Gate.
