An Argument That Crypto and DeFi Are Inflation-Fighting Investments

An Argument That Crypto and DeFi Are Inflation-Fighting Investments

Businesses and crypto enthusiasts always throw unwarranted hype in any situation. The stock market is healthy, the crypto is doing better. The stock market is crashing or inflation is skyrocketing, crypto is the only way out. This crypto and DeFi hype wants you to believe that they are still producing a profit, it’s as if the crypto winter and the failure of multiple exchanges and DeFi implementations over the past few months never happened! When Bloomberg, Coindesk, Corner Telegraph, Fortuneand the motley fool all provide good arguments as to why DeFi is in big trouble, maybe we shouldn’t declare it our saviour? Not to stack, but I also wrote about technical issues around these topics months ago here and here. As for why CBDC might be necessary despite the availability of stablecoins, perhaps the $60 billion failure of TerraUSD (UST) for four months rings a bell?

Much has been said about central bank digital currencies (CBDCs), but when we already have deflationary stablecoins in the ecosystem, the value of which can be pegged to collateral, such as other cryptocurrencies or even assets traditional, what is the real benefit of a CBDC? The very idea of ​​a stablecoin is to offer a crypto asset whose value is not subject to extreme volatility. Most stablecoins achieve this stability by pegging their value to a fiat currency, such as the US dollar, or to a basket of assets, which could include fiat currencies and cryptocurrencies.

Additionally, most stablecoin projects also incentivize people to stay invested in the ecosystem by offering derivative versions of the assets they have locked up in liquidity pools, allowing investors to engage in other DeFi protocols even though their main assets remain blocked. They can earn generous interest and continue to use derivatives to take out our loans, or earn returns elsewhere, compounding their initial investments.

DeFi offers new avenues for economic growth while empowering every individual, not just the super-rich. By not being pegged to a nation-state currency and the broader development of the crypto-powered economy, DeFi protocols can offer generous incentives to save, earn, and borrow with very little investment capital. required initial.

Preview by Tim SloaneVice President, Payments Innovation at Mercator Advisory Group


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