HODLing in crypto is important for the crypto market to stay afloat. Many people view this as buying into assets such as Bitcoin or Ethereum. Buying into these coins makes sense because they are decentralized and as such, are the basis of cryptocurrency. Stablecoins are also great things to hold onto and make the broader crypto market much more stable. Major stablecoins include but are not limited to USDT, USDC, Dai, etc. Not everyone that wants to invest into crypto can afford to hodl all of their money into Bitcoin and other cryptocurrencies. Stablecoins helps with that.
Stablecoins make up a large portion of defi projects such as Compound where USDC takes the top spot for cryptocurrency in the money supply. If you use Blockfi, Celsius, Nexo, or any other cefi company to store your cryptocurrency, you might notice that stablecoins tend to get a higher interest rate than other crypto. Stablecoins helps both defi and cefi with providing the stability they need to lend out and borrow money without it potential evaporating within a day or week.
Without stablecoins, the volatility of the crypto market would make it difficult to fund a project and maintain it. Some of the financial defi and cefi projects that I mentioned earlier offer amazing interest rates compared to traditional banks and credit unions. Nexo offers up to 12% interest on it's stablecoins, Celsius offers 12.65% for USDT. Compound offers a much more conservative 3.14% on Dai. In the United States the average interest rate on a bank account is a whopping 0.04%.
All of the coins of USDT, USDC, and Dai are all pegged to the United States Dollar. Considering the insane difference in interest rate between traditional financial institutions and crypto financial institutions, it's easy to see why some people are putting their money into crypto. Stablecoins might not make sense as a good investment at first, but the interest rates that you get from cefi and defi definitely help with making sense of them.
Stablecoins are a great alternative for the crypto investor who might not have the diamond hands to hodl through a market crash but doesn't want to sell out of crypto. They are also a great way to lend out crypto to new projects or individuals for loans. The potential gains with stablecoins is comparable to the S&P 500 without the downside of potentially losing your money. The downside to hodling stablecoins is that you might end up missing out on the gains of the markets or either the cefi or defi group you are using might get hacked. However, any wallet, defi protocol, or cefi company could get hacked no matter what currency you have.
What is your opinion on stablecoins? Do you like them or think they are the bad for crypto?
Disclaimer: This is not financial advice. I am not a financial advisor. Do your own due diligence before investing your money.
