Stablecoins have become an important part of the cryptocurrency industry. Stablecoins are coins pegged to the rate of a real asset. If you are thinking about whether to invest in TRX or USDD (a stablecoin based on the Tron blockchain), this article is for you. We will consider the main advantages of stablecoins, how to use stablecoins and whether you can make money on them. A detailed study of stablecoins will help you understand whether it makes sense to invest in Tron, USDD, USDC, BUSDC, etc.
Stablecoin loans and risk hedging
There are decentralized applications that issue loans in stablecoins secured by cryptocurrency. With such a loan, you can fix the value of part of your assets. If the price of a cryptocurrency falls, the value of your stablecoins will not change. Therefore, traders use such loans as a hedging tool. But if the price of the cryptocurrency rises, then the profit will be less because you need to pay interest on the loan.
Hedging is the insurance of financial risks with the help of financial instruments. For example, you want to insure against a fall in the value of a cryptocurrency. Therefore, you take out a loan in stablecoins using another financial tool – a lending application.
Liquidity supply in stablecoins
This is one of the ways to make money in DeFi. The user sends cryptocurrency to the protocol and receives a percentage of profitability. In most cases, it is necessary to supply the cryptocurrency of the blockchain on which the project is running. For example, ETH coins for projects on the Ethereum blockchain or TRX for projects on the TRON blockchain. But some protocols can supply stablecoins.
This way of earning is similar to passive income from a bank deposit. You also lend some of your funds and earn interest. However, in the case of DeFi projects, you can return the funds at any time. The yield percentages change when a new block is created in the blockchain, based on the balance of supply and demand. If the percentage gets too low, you can withdraw the funds along with the profit.
By supplying liquidity in stablecoins, you can be sure that the value of your assets will not fall. On the one hand, this is how you protect yourself from the volatility of the cryptocurrency exchange rate. On the other hand, you deprive yourself of the opportunity to earn on the growth of its rate.
Convenient tool for trading on stock exchanges
First of all, stablecoins are suitable for transferring funds between cryptocurrency platforms. For example, if you need to quickly transfer funds from one exchange to another to earn on the price difference. Most stablecoins run on the Ethereum blockchain and their transactions can be completed faster than through a regular banking system.
When transferring large amounts of funds, banks and exchanges may have doubts about the legality of transactions. If you transfer fiat money, then both your bank and the exchange can block it. If you use stablecoins, then only the exchanges can block your accounts, provided that you transfer amounts greater than the allowed limits.
USDD: TRON stablecoin
USDD is a stablecoin and TRON digital asset that was launched on BNB Chain, Ethereum, and TRON on May 5, 2022.
USDD is the TRON stablecoin. USDD stablecoin is available on TRON, Ethereum, and Binance Smart Chain. There is a wide range of different stablecoins you can choose from:
- Binance USD;
- Tether;
- TrueUSD;
- DAI.
The reason why USDD is considered similar to the notorious UST is that both of these coins are algorithmic stablecoins that work by maintaining the price with the help of algorithms, as well as smart contracts that can manage the number of tokens in circulation.
The algorithmic system reduces the total number of available tokens as soon as the price drops below the preferred value. If the value of the coin rises above the set price, more coins will be released into circulation to change the value of the stablecoin enough to bring it down to the desired price. The main goal of using this approach is to have more control over the supply and demand of the coin.
How does USDD work?
The developers of the stablecoin claim that USDD will become one of the most decentralized stablecoins in history. To create USDD, TRON pooled all of its development resources. Due to the fact that it is an algorithmic stablecoin with a solid mathematical foundation, rising token prices will lead to the issuance of additional tokens to lower the value of the TRON stablecoin.
USDD is directly managed by TRON DAO and is backed by TRX, BTC, and USDT. If you are familiar with Terra’s UST, the USDD stablecoin functions in much the same way as UST. Both of these coins are algorithmic stablecoins.
When the price of a stablecoin drops below the aforementioned pegging factor, users are given the option to exchange one USDD for one US dollar. When the price of a stablecoin rises above the pegged amount of 1 USD, it becomes possible to exchange 1 USD for 1 USDD. Thus, you can earn on arbitration.
Although UST failed, Justin Sun believes that UST failed because of too strong growth, insufficient reserves, and a large amount of leverage. USDD, according to Sun, is free from these shortcomings.
Final thoughts
TRON is a sought-after network for dApps, as transactions in it are practically free, and their speed is up to 2000 operations per second. In addition, the TRON virtual machine is compatible with Ethereum, which allows you to quickly transfer applications and smart contracts from one network to another. If you are a TRON devotee and are thinking about investing in TRX and USDD, Gainy’s solution will help you make the right choice.
The application, which is based on innovative technologies, provides investors with recommendations that allow them to achieve financial goals. The application is suitable even for beginners in investments, as a pleasant interface and effective tips contribute to a quick dive into the world of stocks and crypto-assets.
