Cryptocurrency regulation concerns make decentralized stablecoins attractive to DeFi investors

Stablecoins have become a critical part of the cryptocurrency ecosystem in recent years due to their ability to provide cryptocurrency traders with an exit route in times of volatility and their widespread integration with decentralized finance (DeFi). These are necessary for the health of the ecosystem as a whole.

Nowadays, Tether (USDT) and USD Coin (USDC) are the dominant stablecoins on the market, but their centralized nature and the persistent threat of stablecoin regulation have led many in the crypto community to avoid them and seek decentralized alternatives.

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

Investors’ turn towards decentralized stablecoins can be seen by the growing market capitalizations and the number of DeFi platforms that comprise TerraUSD (UST), FRAX (FRAX), and Magic Internet Money (MIM).

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

TerraUSD

TerraUSD (UST) is an interest-bearing algorithmic stablecoin that is part of the Terra (LUNA) ecosystem and is designed to remain pegged to the value of the US dollar.

To create a new UST, users must interact with the Anchor protocol and burn an equivalent value of the network’s native LUNA token or lock an equivalent amount of Ether (ETH) as collateral.

The addition of Ether as a form of collateral really helped speed things up for UST because it allowed some of the value contained in Ether to migrate to the Terra ecosystem and this resulted in an increase in the circulating supply of UST.

1 / bETH is now live on the Anchor web app!

You can now borrow $ UST against bETH, a wrapped version of the stETH staking derivative for ETH 2.0.

We teamed up with @LidoFinance to provide a guide to using bETH on Anchor. https://t.co/T5KkGNNAYE

– Anchor Protocol (@anchor_protocol) August 13, 2021

1 / bETH is now available on the Anchor web app!

You can now borrow $ UST against bETH, a wrapped version of the staking derivative stETH for ETH 2.0.

We partnered with @LidoFinance to provide guidance on using bETH in Anchor.

As a result of UST’s growth, The Terra network recently surpassed Binance Smart Chain in terms of total locked value (TVL) on the protocol, which now stands at $ 17.43 billion, according to data from DefiLlama.

Terra has also been adopted by the Curve stablecoin ecosystem, further assisting its distribution across numerous DeFi protocols. This also gives UST holders another way to get a return alongside the 19.5% Annual Percentage Yield (APY) offered to users who stake their UST on the Anchor Protocol.

FRAX

FRAX (FRAX) is the first fractional algorithm stablecoin developed by Frax Protocol. It is partially backed by collateral and the remaining portion is algorithmically stabilized.

The real story behind the growth of FRAX begins with its adoption by the DeFi community within multiple well-known projects and decentralized autonomous organizations (DAOs) voting to add support for the stablecoin within their ecosystems and treasuries.

FRAX was adopted early on by OlympusDAO’s override protocol as a form of collateral that could come together to obtain the platform’s native OHM token. It also became the stablecoin of choice within the recently launched TempleDAO protocol.

On December 22, 2021, FRAX was added to Convex Finance (CLC) and immediately jumped into the ongoing Curve Wars, where a handful of major DeFi protocols are struggling to accumulate CLC and Curve (CRV) to gain power of Vote on the Curve network and increase your stablecoin performance.

The @fraxfinance Convex soft-launch has begun.https: //t.co/oZ9WKZxNXR

Deposit + convert $ FXS to $ cvxFXS

– Convex Finance (@ConvexFinance) December 22, 2021

This week, Curve Wars received a new entrant after Tokemak members voted to add FRAX and Frax Share (FXS) to their Token Reactor, promising to “take the fight to a massive new scale.”

Magic Internet Money

Magic Internet Money (MIM) is a collateral-backed stablecoin issued by a popular DeFi protocol called Abracadabra.Money. What sets this coin apart is that it is “summoned” into existence when users deposit one of the 16 supported cryptocurrencies in “cauldrons” that support MIM.

There are limitations on the amount that can be borrowed from the assets supported in Abracadabra and this is part of the protocol effort to avoid the issues faced by MakerDAO (DAI). Namely, the presence of too many centralized stablecoins and the history of catastrophic liquidations during market volatility.

Some of the popular tokens available to pledge as collateral to mint MIM include wrapped Ether (wETH), Ether, Shiba Inu (SHIB), FTX Token (FTT), and Fantom (FTM).

‍♂️!

Our first zero-interest lending market is here!

1️⃣ Provide $ WETH as collateral and mint $ MIM or leverage your $ ETH!

– Interest 0%
– Liquidation Fee 4%
– LTV 90%
– Borrow Fee 0.5%

What are you waiting for anon? Mint now! Https: //t.co/N3r54iPo7n

– ‍♂️ (@MIM_Spell) December 31, 2021

‍♂️!

Our first marketplace for interest-free loans is here!

1️⃣ Provide $ WETH as collateral and coin $ MIM or leverage your $ ETH!

– Interest 0%
– Settlement commission 4%
– LTV 90%
– Loan commission 0.5%

What are you waiting for now? Coin now!

MIM has also been integrated into Curve Finance pools, further highlighting the important role that Curve plays for stablecoins within the DeFi ecosystem and underlining the incentives to participate in Curve Wars.

MIM’s integration of centralized and cross-platform exchanges, including its long list of collateral options, has increased its circulating supply to $ 1.933 billion, making it the sixth stablecoin in terms of market capitalization.

While the amount of value held in these decentralized stablecoins is only a fraction of that held in USDT and USDC, They are likely to continue to see their market share increase in the coming months as advocates of decentralization choose them over their centralized counterparts.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Each investment and commercial movement involves a risk, you must do your own research when making a decision.

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