We live in a society when finance is controlled by few people. Even though governments are elected by the common people (in democratic countries, of course), the people who are in governments are the lobbyist for businesses or work for the interest of big businesses. If you don’t see these kinds of things in government that’s exception, in almost all countries, governments are not for common people. Instead they control every aspects of the society, including finance.
Problems With Decentralized Finance
The current financial system is centralized, it is controlled by government, and government is controlled by few people/businesses. Enter decentralized finance, a financial system that does not have any kind of centralized authority and is completely under the people. Decentralized finance, called DeFi, is a result of blockchain technology and cryptography that validates transactions through community and is between two individuals (peers to peers), without any middle man. The term DeFi or Decentralized Finance became popular with the popularity of cryptocurrencies. We live in a world where everything is centralized, but in 2009 something changed. An anonymous man created Bitcoin, decentralized money, and move the world towards Decentralized Finance. However, this is yet to be accepted in the main stream market.
So, decentralized finance is all good? Aren’t there any problems? Well, there are a lot of disadvantages and one of the major issues is transactions cannot be reversed. Once sent, it will be gone forever. This can make people lose money when they use wrong address or wrong network. There are also other disadvantages. Let’s look in the recent phenomena.
Do you remember Squid Game Token fiasco back in 2021? It was a Rug Pull and common pople lost millions of dollars. Do you remember Terra Luna? If you are in to crypto currency you certainly remember it. It was a Ponzi scheme and the creator scammed over a billion dollar. Thankfully, the person who created Terra Luna has been sent to jail but the person who scammed with Squid Game Token is at large.
Do you remember something called Celsius Network that claimed itself to be a crypto bank? It declared bankruptcy and common investors lost their money. Then there is another one called FTX. It was once the third biggest crypto exchange. Millions of people have lost billions of dollars through FTX. Thankfully, the owner of FTX has been sent to jail.
These are some of the incidents from the decentralized financial market that happened in the last couple of years. Because of these causes common investors lost a lot of money. Do you know what these things happen? Well, that’s because cryptocurrencies are decentralized money and the investment and trading happens in the decentralized market without any central authority. Due to the lack of central authority that usually monitors the transactions, common investors are scammed.
If you are with centralized finance, you are less likely to be scammed because you perform transactions with centralized banks and these banks are controlled by the governments. However, with crypto and decentralized market, getting scammed is common because they exist virtually with no one to control them.
What Are Stable Coins and Their Use?
Cryptocurrencies are digital money that operates without centralized control. For a coin to be considered cryptocurrency, it must be decentralized and mined publicly. However, stable coins are a different type of digital currency. They are categorized as crypto coins but are not truly cryptocurrencies because they are backed by fiat reserves in banks or other assets.
Stable coins serve as a solution to the volatility associated with cryptocurrencies. While popular stable coins like USDT and USDC are backed by fiat currencies, others like DAI are decentralized and backed by cryptocurrency collateral. These stable coins aim to maintain a stable value, unlike other cryptocurrencies whose prices can fluctuate drastically.
Stable coins serve various purposes within the cryptocurrency market. They are commonly used as a safe haven during market downturns, allowing investors to convert their volatile assets into stable coins to minimize losses. For example, if the value of a cryptocurrency like Bitcoin starts to decline, investors can convert their holdings into stable coins to preserve their value.
Stable coins also are used as trading pair within the cryptocurrency ecosystem. Traders often use stable coins as a base currency for trading pairs on exchanges, providing liquidity and stability to the market. They are also used for remittances, decentralized finance (DeFi) applications, and as a store of value in countries with unstable fiat currencies. Stable coins play a crucial role in reducing risk and providing stability in the cryptocurrency market, making them an essential tool for investors and traders.
Privacy Coins: What Are They And Why They Are Necessary
Privacy coins enable users to send and receive digital coins in a private manner. Unlike Bitcoin and other cryptocurrencies, where transactions are visible on the public blockchain, privacy coins ensure that transaction details remain confidential. They achieve this by employing technology that conceals not only the sender and receiver addresses but also the transaction record itself.
The idea of enhancing anonymity and privacy in cryptocurrency transactions gained popularity with the emergence of privacy coins like Monero and Dash in 2014. These coins introduced features that prioritize user privacy and anonymity. But you might wonder, if cryptocurrency transactions are already anonymous, why the need for additional privacy? The answer lies in the desire for enhanced security and confidentiality. While traditional cryptocurrencies offer some level of anonymity, they still leave transaction details visible on the blockchain, which can potentially be traced back to individuals. Privacy coins address this concern by ensuring that transaction details remain completely private, providing users with an extra layer of security and anonymity.
Privacy coins play a crucial role in safeguarding the privacy and security of cryptocurrency transactions, offering users greater control over their financial privacy in the digital world, especially in Decentralized Finance
Role of Stable Coin in Decentralized Finance
Stable coins are the coins that are pegged with USD in 1:1 ratio. Stable coins are created by maintaining a reserve with USD, gold, etc. with the traditional finance systems like banks. USDT, BUSD and USDC are some popular stable coins. Unlike, the general understanding of crypto, these stable coins are not decentralized money, these are crwated and managed by private companies. USDT is created by a company called Tether, BSD and USDC belong to exchanges like Binance and Coinbase. Interestingly, Dai is considered a fully decentralized stable coin. The preference for stable coins like USDT in crypto trading is driven by the aim to minimize risks. One of the easiest ways to use stable coins is for strategic crypto trading.
I just checked the coin market cap and I will share the recent data regarding these two stable coins, USDC and USDT.
At the moment of typing this, USDT is the third crypto coin by market cap, it has a market cap of $81 billion, whereas USDC is in the fifth position with a market cap of 52.52 billion. You can make a comparison between these two stable coins in terms of market value. USDT is on Ethereum Blockchain and is backed by US dollars. It is also the first stable coin.
Originally USDC was available on Ethereum but now it has expanded to other blockchain platforms like Solana, Stellar, and Algorand. USDC is backed by USD denominated assets in various US-regulated financial institutions. USDC was jointly created by Coinbase and Circle.
The primary purpose of creating a stable coin was "to facilitate seamless pass transactions, improved arbitrage, and value exchange." Stable coins tri to minimize the risk created by the fluctuating crypto market.
USDT and USDC are Centralised stable coins, (DAI is a decentralized stable coin). The centralized stable coins make money through lending and investing just like the traditional banks. If you are investing in crypto you can use stable coins to minimize the financial risk.
Popular Blockchain Platforms for Decentralized Finance
Ethereum is a decentralized blockchain platform for execution of peer to peer application code called smart contracts, creation of crypto tokens and Dapps (Distributable Application). Ethereum is powered by its own native token called Ether or ETH. Ethereum is the most popular blockchain platform.
There are a lot of tokens in the Ethereum Ecosystem. ETH is not only the most popular, the highest priced, and the most valued token in the Ethereum Ecosystem, but also has a market dominance of 18.8 percent in the entire crypto market and has second highest value in terms of market cap.
ETH is undoubtedly the best token for investment in Ethereum Blockchain, but there are also other popular tokens that you can start investing right now.
