Stablecoins are frequently used in DeFi because they mimic traditional fiat currencies like USD. This is an important development because the history of crypto shows how volatile things are. Stablecoins like DAI are designed to track the value of USD with minor deviations even during strong bear markets, i.e. even if the price of crypto is crashing like the bear market of 2018-2020.

Lending protocols are an interesting development usually built on top of stablecoins. Imagine if you could lock up your assets worth a million dollars and then borrow against them in stablecoins. The protocol will automatically sell your assets if you don't repay the loan when your collateral is no longer sufficient.

Automated market makers ETH to IDR form the basis of the entire DeFi ecosystem. Without this, you're stuck with the legacy financial system where you need to trust your broker or clearinghouse or an exchange. Automated market makers or AMMs for short let you trade one asset for another based on a reserve of both assets in its pools. Price discovery happens via external arbitrageurs. Liquidity is pooled based on other people's assets and they get access to trading fees.

Posted by: cramer john at 07:24 PM | No Comments | Add Comment
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