RedStone Research, 14th July 2023
- Stablecoins are cryptocurrencies whose value is pegged to a fiat currency, commodity, or financial instrument, most commonly the US Dollar.
- There are multiple types of stablecoins, the most popular are Fiat-backed, Collateralized Debt Position (CDP) and Algorithmic versions of stable assets.
- Fiat-backed stablecoins offer greater capital efficiency but are issued by a centralized party, therefore DeFi dApps expand adoption of CDP and algorithmic stablecoins.
- Oracles play a crucial role in decentralized price stability mechanisms. Very often, they are a cornerstone in stablecoin design and their utilization will continue to grow as more stable assets are managed by algorithms and smart contracts.
- Algorithmic stablecoins have massive potential in DeFi, but only very few have found a robust design with security measures and reliance on trusted oracles.
- Stablecoins backed by Liquid Staked tokens (LSTs) like Lybra, Raft and Gravita are gaining significant traction, being fueled by the growing popularity of tokens like stEH, wstEH, rEH, swETH, frxETH and other LSTs.
- The collateral types for stablecoins are expanding, with the Real World Assets (RWA) tokenization playing an increasingly important role.
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