Saving Your Money in a Crisis With Cryptocurrencies

Who would have thought in the distant 2010s that in 2022 unsecured currencies for "geeks" would become the salvation from crazy inflation?

In the world of cryptocurrencies, there are protective assets. You've already heard about pyramids and the high probability of losing all your money. Still, you hardly heard about stablecoins, the price of which remains unchanged and tied to the fiat currency rate.

In this article, I will tell you what stablecoins are, how stablecoins remain stable, what stablecoins are secured with, how stablecoins can save you from inflation, and how to earn 20% per annum on stablecoins.

What is a stablecoin?

A stablecoin is a utility token that runs on top of a blockchain. It is paired with the U.S. dollar so that its ratio is always 1:1. In other words, stablecoins are tokens whose price is artificially tied to a "stable" asset such as the U.S. dollar.

There are dozens of stablecoins, with their total issue approaching $200 billion. The most popular stablecoins are USDT, USDC, BUSD, UST, DAI, FRAX, TUSD, USDP, LUSD, USDN, OUSD, GUSD, and FEI. Only the four most popular stablecoins have capitalizations above $10 billion.

Most of the issuance of stablecoin is traded on centralized exchanges and runs on the Ethereum network. But large stablecoins try to support as many popular networks as possible. All popular stablecoins except Ethereum run on Algorand, Solana, Stellar, Hedera, Avalanche, Tron, Flow, and other blockchains.

It is impossible to send stablecoins directly from one blockchain to another. You can't just send USDC from Ethereum to Solana. It can only be done using a centralized exchange or a decentralized blockchain bridge. Attempting to directly send money from a wallet on one network to a wallet on another network will result in a loss of funds.

And one more important note: most stablecoins are centralized projects. The most popular USDT (Tether) and USDC (Circle) stablecoins are issued by legal entities, with all the implications.

How do stablecoins stay stable, and what are they secured with?

Stablecoins maintain price stability in various ways:

• Fiat stablecoins are backed by fiat currency (e.g., the U.S. dollar) held by a regulated financial institution. As an example, let's take the USDT stablecoin. How does it work? Tether, which owns this stablecoin, issues a certain amount of USDT while having the same amount of fiat dollars on its account to maintain a USDT:USD ratio of 1 to 1.

  
  

• Cryptocurrency stablecoins are backed by cryptocurrencies and work as a secured loan. For example, to get a $50 loan in DAI (a cryptocurrency pegged to the USD), you may have to give $100 of ETH. If ETH goes up in value, your ability to borrow will increase. If it falls in value, you may have to give more. You'll get your ETH back when you get your DAI back.

  
  

• Algorithmic stablecoins rely on algorithms to control the money supply, similar to how the Central Bank prints and destroys fiat currency based on market demand. Terra USD is a case in point (although this is not a reliable example after recent events).

Your purchasing power falls as inflation increases. For the same 1,000 dollars a month ago, you could buy many more groceries than you do today. And stablecoins can help you not to suffer from inflation.

What will help you increase your buying power?

You need to get ahead of inflation. How do you do that? Investments in a more stable currency or assets hedged with a more stable currency. With investments, you get ahead of inflation (here, the question is debatable, it depends on what kind of investor you are). When you need the money, convert the funds back and use them.

How else can you get ahead of inflation?

You can buy stablecoins. In this case, your money is insured, for example, against UAH inflation. Yes, only from UAH inflation, the dollar is also subject to inflation, but it will be much lower than UAH inflation in the current situation.

You may ask, so why don't I just keep my fiat dollar? With the crypto dollar, everything is much easier. You buy it on the cryptocurrency exchange, you own it personally, not the bank where you have your account, and you can be sure that you will get your money back at the real rate, not what will be "drawn" in the bank app.

Secondly, a stablecoin deposit can give you 20% per annum.

Here we come to the most exciting part.

How to earn 20% p.a. on stablecoins?

You can earn 20% on stablecoins by staking them. Staking means locking your cryptocurrency to validate transactions in a blockchain in exchange for a reward (usually more cryptocurrency of the same type).

For many stablecoins, issuing companies have developed protocols to hold funds within their ecosystem. How do these protocols work? You lock your coins into their blockchain. In simple terms, you guarantee that you won't sell them within a specific time. For this, you will be rewarded in the same crypto dollars.

The annual percentage you can earn varies from a few percent to a few tens, and sometimes hundreds. But it would be best if you kept in mind that currencies give high rates from not the most reliable issuers, so there is a risk of losing your money there.

You can earn by staking stablecoins on:

• Binance. Deposits in BUSD and USDT with up to 10% yield.

  
  

• Crypto.com. Deposits in USDT, USDC, USDP, and DAI with yields up to 14% per annum, but with caveats: 2% of 14% are paid in CRO tokens, and the highest percentage is given to those who deposit a decent amount in CRO.

  
  

• Kraken. Only euro and dollar deposits are available, with a 1.5-2% ridiculous yield.

  
  

• KuCoin. Only USDT is available, with yields up to 4.9%.

  
  

• Gate.io. Yields on USDT are around 4%.

  
  

• Huobi. Yield on deposits in USDT and UST is up to 10%, in USDC up to 5.12%, and in HUSD up to 3.07%.

  
  

• FTX. Accounts with balances less than $10,000 earn 8%, with balances over $10,000 - 5%.

  
  

• Yield.App. Up to 14% on deposits in USDT and DAI, 1-3% of them is paid in YLD token.

  
  

• Nexo. Up to 10% on deposits in USDT, USDC, DAI, USDP, USDX, or up to 12% when paid in full in NEXO tokens.

  
  

• Celsius. Up to 9.32% on deposits in USDT, USDC, TUSD, GUSD, PAX, BUSD, and several less popular stablecoins.

  
  

• Swissborg. Up to 7.22% on deposits in USDT, USDC, and EURT.

  
  

• BlockFi. Up to 11.5% on deposits in USDC, USDT, BUSD, PAXG.

  
  

• Origin Protocol. Charge about 9% on an OUSD stablecoin that just lies in the wallet.

  
  

• flexUSD. Up to 7% on flexUSD stablecoin with payments three times a day.

  
  

• Vires.Finance (Waves ecosystem). Offers 12-15% returns in USDN, USDC, USDT, EURN.

  
  

• Goldfinch.Finance. Offer yields of up to 21.25% in USDC pools. Funds are used for consumer and small and medium business loans in Latin America, Southeast Asia, and Africa.

  
  

• Andreessen Horowitz Venture Capital Fund is a key investor in Goldfinch.

  
  

• Maple.Finance. Yields up to 18.5% in USDC pools. Funds are used by Maven 11, BlockTower Capital, Alameda Research Venture Funds, and others for their investments.

  
  

• Orion.Money. 15-20% return on investments in Wrapped UST, BUSD, USDT, USDC, DAI, and FRAX.

  
  

• Mimas Finance. 22-26% for investments in USDC and USDT.

  
  

• Anchor Protocol. 19-20% yield on UST deposits.

However, it would be best if you remembered about risks.

Cons of stablecoins and possible risks

Yes, stablecoins are stable. But there are risks everywhere. And that's what you are dealing with:

• A significant disadvantage for a company issuing stablecoins is that the funds that are collateral cannot be invested anywhere. They have to be kept in the company's accounts and be a guarantee that the price of the crypto dollar will not collapse. Consequently, the company receives no profit from the tens of millions of dollars lying dead weight in its accounts. This is a minus for the issuer but a plus for you. Since the money is not invested anywhere, you can ensure its safety and that every stablecoin is secured.

  
  

• The funds lying in the company's accounts issuing the stakes can be stolen. This risk is minimal, as corporations in web 3.0 pay very much attention to security, but it is still worth mentioning because theoretically, it is possible.

  
  

• You can never be sure that a company has fully secured its tokens. For example, although crypto communities worldwide trust Tether, there are rumors that the American crypto-giant does not have enough dollars in its accounts to secure its stablecoin.