Stablecoins are cryptocurrencies pegged to assets like the U.S. dollar, allowing quick blockchain transfers without the price swings (allowing the stability of fiat). In the over $300 billion market today, they’re crucial for payments, trading, and earning without market swings.
Types of Stablecoins
Fiat-Backed: Backed 1:1 by cash or short-term equivalents, these are the most widely trusted stablecoins. USDT and USDC dominate this category with a combined market cap of around $260 billion market cap through transparency reports from issuers like Tether and Circle. This could be ideal for low-risk entry, although watch for regulatory scrutiny on reserves.
Crypto-Collateralized: These stablecoins are minted against assets like Ethereum (ETH), usually over-collateralized to stay stable. The leading cryptocurrency here is DAI with around $5 billion in supply. It offers decentralization and easy DeFi use. However, risks include liquidations during volatility, with yields of 3-5% via the DSR.
Algorithmic: Here, stability is controlled by supply adjustments instead of reserves. After the likes of Terra failed in 2022, adoption has faded. Despite their existence, depeg risk is high, and yields can swing from 0-10%, which often is unsustainable.
RWA-Backed Stablecoins: These cryptocurrencies are backed by tokenized real assets like U.S. Treasuries. Options like USDM (Mountain Protocol) and USDY (Ondo) deliver 4-5% yields. They are tied to T-bills and operate under Bermuda’s regulatory framework. This“compliant yield” category is growing very fast.
How Investors Can Earn on Stablecoins?
- Safe yields: Stablecoin yields often crush bank rates. They enable even 0.5% in savings accounts vs. 5-15% APY. Therefore, idle cash becomes compounding income without price speculation
- Passive income: This stream of earning is created with minimal management as payouts often arrive daily or weekly, with minimal management. Usually ideal for long-term holders.
- Hedge volatility: Lock profits in USDC during market and earn approximately 4% while waiting to re-enter.
- Access arbitrage: These opportunities exist, especially in developing regions where USDT routinely trades 5-10% above spot.
- Dollar savings for emerging users: For users in markets hit by inflation like Argentina, inflation-hit markets like Argentina, stablecoins function as dollar savings with yield. Usually, they preserve purchasing power better than local currency.
Source: https://coingape.com/ways-to-earn-money-with-stablecoin-holdings/
