Thread by @eli5_defi

#GM!
1/ #Stablecoins have become inseparable part of #DeFi and gained immense popularity in early 2022. After the disaster of $UST and $LUNA, demand of stable medium of #exchange never dissipated.

#Crypto #Cryptocurrency #Bitcoin #Ethereum #ETH #BTC #AVAX #BNB #SOL #visualguide

2/ #Stablecoins are stable-price digital assets. These coins are 'pegged' against reserved assets. Unlike digital assets such as Bitcoin and Ethereum, which are volatile, stablecoins value remain relatively stable.

3/ Digital assets such as Bitcoin and Altcoin are subject to high volatility in the market, making them hard as store of value and medium of exchange. #Stablecoins designed to provide stable value of asset.

4/ There are few alternative for #stablecoins taxonomy, however the most common used divided based on the issuer and backed assets.

5/ There are also dichotomy between #centralized and #decentralized stablecoins. However, each of them have advantage and disadvantage that needed to be considered when choosing your stablecoins.

6/ #Fiat and #commodities are the main reserves for centralized stablecoins as both are relatively liquid assets. They're held by third-party custodians and audited periodically.

7/ #Digital Asset backed #stablecoins are backed by other crypto assets. Since the underlying asset is itself highly volatile, crypto-backed stablecoins are generally overcollateralized to ensure stability.

8/ #Algorithmic or hybrid stablecoins are stablecoins that rely on complex algorithms to keep their prices stable, effectively balancing funds held on the blockchain via #smart #contracts with #supply and #demand to maintain price stability.

9/ Few example of stablecoins:
@LiquityProtocol, @MakerDAO, @AlchemixFi, @QiDaoProtocol, @MIM_Spell, @fraxfinance, @usddio, @neutrino_proto, @InverseFinance, @feiprotocol, @Tether_to, @circlepay, @PaxosGlobal, @tusdio

10/ Death spiral as happened in $UST and $LUNA is a condition where cascade of redemption happened and caused price of algorithmic token falls followed by lose of the peg. The arbitrage mechanism cannot sustain and further degrade the price.

11/ No perfect design of stablecoins will be exist there will be trade off between the privacy and stability. However the table below summarize which one is the riskiest. Full paper by @ccatalini and @alonsodegortari can be found here:

papers.ssrn.com/sol3/papers.cf…

12/ Talking about #stablecoins will not be complete without #CBDC which is issued and regulated by a nation's monetary authority or central bank. However, as of now, there is no coordinated standard for current CBDC makes issue of interoperability and risks of security.

13/ The next foreseeable future for #stablecoins issuers will be their integration into traditional finance and regulatory apparatus. The challenge come from the advent of tokenized deposits from #banks and #regulation

14/ As usual, @DefiLlama been doing amazing job for aggregating #stablecoins protocol. Full list in here:

defillama.com/stablecoins

15/ Account below has been inspiration for us to create high quality content:
@thedefiedge
@blocmatesdotcom
@meetbarvadiya
@shivsakhuja
@knowerofmarkets
@theFiVerse
@BowTiedNightOwl
@BowTiedBull
@rektdiomedes
@The_ReadingApe
@phtevenstrong
@DeFi_Made_Here
@VirtualKenji