Stablecoins: Stability in DeFi and Crypto | Pyth Price Feeds

In the fast-paced and often tumultuous world of decentralized finance, stablecoins have risen as a source of stability, offering a dependable link between conventional financial systems and the decentralized ecosystem.

Since stablecoins play such a critical role in the DeFi ecosystem, it is imperative that the Pyth Network supports the relevant stablecoin price feeds for dApps to construct custom pairs and open specialized markets for stablecoin traders.

In this blog post, we will delve into stablecoins and how they support the Web3 capital markets.

What are Stablecoins?

A stablecoin is a type of cryptocurrency designed to maintain a stable value by being pegged to a specific reserve asset, such as a fiat currency like the US Dollar or a commodity like gold.

This stability is intended to reduce the price volatility commonly associated with other cryptocurrencies like Bitcoin or Ethereum, making them a dependable store of value and medium of exchange in the digital realm.

How Do Stablecoins Maintain Their Peg?

Stablecoins can maintain their peg through various mechanisms including (over-)collateralized and algorithmic approaches. The most common method is through collateralization. Some stablecoins combine elements of different strategies to enhance their stability.

Fiat-Collateralization: The stablecoins back their value by holding a reserve of real-world fiat currency in bank accounts. For every stablecoin issued, an equivalent amount of fiat is held, ensuring a direct link between the cryptocurrency and a stable asset. Note that this approach relies on the trustworthiness of the custodian holding the reserve.

Crypto-Collateralization: The stablecoins are backed by other cryptocurrencies. The stablecoin protocol ensures that the value of the backing cryptocurrency remains higher than the value of the stablecoins issued. This approach involves over-collateralization to safeguard against price fluctuations.

Commodity-Collateralized: These stablecoins are pegged to valuable commodities like gold or silver. Reserves of these commodities back the stablecoins' value, providing a tangible asset base that contributes to their stability.

Algorithmic: Operating without collateral, algorithmic stablecoins utilize smart contracts to control their supply dynamically. Algorithms adjust the stablecoin's supply based on demand and market conditions to maintain a stable value. This approach requires careful calibration to be effective and is susceptible to de-pegging attacks.

Pyth Price Feeds: The Stablecoins

Tether (USDT)

Tether (USDT) was introduced in 2014 on the Bitcoin blockchain and is one of the first stablecoins created. USDT is tied to the US Dollar's value and is a favored choice for traders and Web3 participants globally.

Today, USDT is the largest stablecoin with the most significant trading volume and market capitalization, holding two-thirds of the stablecoins market share.

Explore Pyth USDT/USD feed.

USD Coin (USDC): Trusted Tranquility

USD Coin by Circle offers a secure and transparent channel for transacting and storing value pegged to the US Dollar. Supported by regulated financial institutions and overseen by the CENTRE Consortium, a collaborative effort involving Circle and Coinbase, USDC's stability is ensured by fully backing each USDC token with corresponding US Dollars in reserve bank accounts.

Explore the Pyth USDC/USD feed.

Dai (DAI): Decentralized Resilience

Dai (DAI) by MakerDAO maintains its peg to the US Dollar through smart contract-based algorithmic mechanisms and without direct fiat reserves. DAI is known for its decentralized nature, innovative collateral system based primarily on Ethereum, and symbolic role in DeFi history.

Explore the Pyth DAI/USD feed.

Binance USD (BUSD)

Binance USD (BUSD) is a collaboration between Binance and Paxos to create a stablecoin that mirrors the US Dollar at a 1:1 ratio. BUSD operates across blockchain networks, including Binance Chain and Ethereum, enhancing its compatibility and usability. BUSD offers a reliable medium for trading and preserving value within Web3.

Explore the Pyth BUSD/USD feed.

Euro Coin (EUROC)

Euro Coin, also known as EUROC, stands as a euro-backed stablecoin with worldwide accessibility on both Ethereum and Avalanche platforms. In a manner reminiscent of USDC, Circle takes charge of issuing Euro Coin under a comprehensive full-reserve framework.

Crafted to embody unwavering stability, Euro Coin derives its strength from complete collateralization with euros, meticulously held in dedicated euro-denominated banking accounts. This ensures its perpetual redeemability at a precise 1:1 ratio with euros.

Explore the Pyth EUROC/USD feed.

USDD (USDD)

USDD is a stablecoin on the TRON blockchain, representing an algorithmic stablecoin. Rooted in the power of mathematics and algorithms, its mission mirrors that of Frax Finance (FRAX), striving to bestow financial autonomy.

Explore the Pyth USDD/USD feed.

The Pyth Network supports price feeds for many more stablecoins, including Celo Dollar (CUSD/USD), Origin Dollar (OUSD/USD), TerraClassicUSD (USTC/USD), and TrueUSD (TUSD/USD). Other stablecoins like Liquidity USD (LUSD), FRAX, and VAI will be available on Pyth very soon. You can explore the comprehensive catalog of available price feeds on the Pyth Network to learn more.

Applications Using Pyth Stablecoin Price Feeds

Kwenta

Kwenta is a decentralized derivatives platform offering perpetual futures and options trading on Optimism. Kwenta enables users to can gain exposure to on-chain and real-world assets.

Thanks to Pyth Price Feeds, Kwenta and other #PoweredByPyth members of the Synthetix ecosystem can support markets for digital assets and RWA’s, including the USDT/USD market.

ReactorFusion

ReactorFusion, an innovative lending and borrowing platform native to zkSync era, merges Compound Finance principles with distinctive bribe-reward tokenomics. This integration, along with Pyth’s stablecoin price feeds, establishes a novel and streamlined approach to DeFi lending within the zkSync Era ecosystem.

Lendle

Lendle, a cutting-edge decentralized liquidity market on Mantle, has integrated with Pyth’s stablecoin feeds to enable innovative lending solutions. Lendle offers liquidity provision to DEXs, isolated markets, and under-collateralized lending. In collaboration with FusionX Finance, Lendle seeks to disrupt the lending landscape and provide an enhanced UX through improved tokenomics.

0VIX

0VIX on Polygon zkEVM is a decentralized liquidity market protocol that enables users to lend, borrow, and earn interest on digital assets easily.

0VIX relies on Pyth to track the prices of major assets including USDT and USDC to monitor user positions and value their posted collateral.

Solend

Solend, a borrowing and lending protocol, uses Pyth’s stablecoin price feeds to help ensure accurate, real-time asset valuation. In doing so, Solend facilitates secure and efficient borrowing and lending transactions.

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