Many believe that assets like stablecoins expose the financial sector to systematic risks. Nonetheless, given the unfavorable state of the market, these pegged tokens have emerged as the most popular class among investors.

The most recent on-chain report from QuickNode showed a noticeable increase in stablecoin activity on blockchain networks.

Between the first and third quarters, there was a 45% increase in active addresses and a 41% spike in transactions for stablecoins. On the other hand, DeFi saw a considerable decline in daily active addresses and transactions. Furthermore, the average daily transactions for these protocols increased from over a million in the first quarter to 786,000 in the third.

In this article, let’s have a look at stablecoins and DeFi and how they are related to each other. Let’s begin!

What are Stablecoins?

Stablecoins refers to an asset class in crypto whose value is pegged on some external or reserved asset. Often, this external asset might be a fiat currency, such as an Indian Rupee or the US Dollar. Stablecoins are very popular alternatives to existing cryptos and can bring about ‘stability,’ as the name suggests, to the trading of crypto.

Bitcoin has been known to be a notoriously volatile asset. For example, in late March 2020, Bitcoin volatility was as high as 11%, a peak in years of almost always remaining under 8%. 

This volatility stands as a barrier to the paramount heights cryptocurrencies can attain. A concept that combats this with ease is stablecoins. Their benefits include the fact that they bridge the gap between fiat currency and cryptocurrency.

For detailed information about stablecoins, read here.

What is DeFi?

DeFi stands for Decentralized Finance, comprising a range of financial activities operating on distributed ledgers or blockchains, including lending, borrowing, trading, and investing. It represents a digital version of traditional banks and financial services, utilizing the power of blockchain technology.

Like online e-commerce platforms streamline transactions by eliminating intermediaries, DeFi offers an analogous approach to financial services. It redefines the conventional banking model, presenting an alternative that operates on blockchain networks while levying a modest service fee. Furthermore, these services are accessible around the clock, enabling global transactions without the need for intermediaries or revealing personal identity information.

For a quick overview, read here.

Now, let’s see the rise of stablecoin transactions in today’s revolutionary Web3 space.

The Rise of Stablecoin Transactions

The report shows the growing dominance of stablecoins. The report indicates a substantial surge in stablecoin transactions, reflecting increased demand for these assets across various blockchain ecosystems.

Stablecoins are no longer just used for transactions; they are now finding applications in lending, trading, and serving as a store of value. The ability to transact in stable-value crypto while benefiting from the transparency and efficiency of blockchain technology has become an enticing proposition for many.

Stablecoin as a Part of DeFi

One key player in the crypto space recognizes the pivotal role of stablecoins in the DeFi ecosystem. Their digital dollar stablecoin solutions offer stability and liquidity, making them a vital component of DeFi applications. These stablecoins act as bridges between traditional finance and DeFi, simplifying user access to decentralized financial services.

The Evolution of DeFi and Stablecoins

To comprehend this shift in dominance, it’s essential to consider the core attributes of DeFi and stablecoins. DeFi offers decentralization, accessibility, and a wide array of financial services, while stablecoins provide stability and a dependable medium of exchange. The symbiotic relationship between these two realms has the potential to reshape the crypto landscape, with DeFi projects increasingly relying on stablecoins for liquidity and user adoption.

Conclusion

As per the reports, stablecoins have outperformed DeFi, signaling a shift in the crypto landscape. The rise of stablecoins is not merely a fleeting trend; it underscores the growing importance of stability in a market known for its volatility. As the crypto world continues to evolve, staying informed about these developments is vital, as they could redefine how we interact with digital assets and decentralized financial services.

Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.