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Decentralized Finance, Featured

Potential of Stablecoins in Decentralized Finance

Decentralized finance is gaining popularity all over the world because it is emerging as a viable alternative to centralized finance. Transparency, anonymity, and lack of centralized authority are the main features of DeFi that can break free of the monopoly of traditional financial systems and pave the way toward financial freedom. Stablecoins, though being an integral part of DeFi, help in limiting the volatility of cryptocurrency, by linking its value with common fiat currencies such as the US dollar. Sometimes, stablecoins may be pegged to precious metals such as gold. Some can be pegged to other crypto assets. The potential of stablecoins in the realm of decentralized finance needs to be explained by highlighting its advantages.

Benefits of Stablecoins in the Realm of Decentralized Finance

Stablecoins are unique compared to other DeFi digital assets. This is because it restricts the level of volatility and thereby gains the confidence of many risk-averse investors and users. The following are some of the major noteworthy benefits that stablecoins can guarantee in granting financial freedom.

Low Volatility

This feature is unique among stablecoins. Unlike other crypto assets, the value of stablecoins is much more stable. Therefore, despite being a part of decentralized finance, users can perceive it like traditional currencies. 

Faster and lower-cost payment systems

Traditional centralized financial systems not only perpetuate inequality but are also guilty of having slower payment systems. Time matters a lot for businesses and loss of time results in actual accountable losses in business. Crypto exchange platforms that deal with stablecoins enable faster and cheaper international transactions. Therefore, platforms dealing with stablecoins are not just affordable but are highly beneficial for small businesses that want to expand. 

Convenient Settlements 

Convenient settlements provide a major case for better operations on the blockchain. It runs 24/7 and can settle payments instantly. These settlements take place globally and can facilitate international transactions. Fiat settlements tied with banks and centralized financial institutions often do not provide 24/7 facilities and work only during business hours. Therefore, stablecoins invariably have an edge over fiat money.

Hedge Against Financial Emergencies

Financial emergencies can have a devastating impact on businesses and individuals. It can destroy financial freedom by eroding the value of the savings. Stablecoins nevertheless have the potential to ward off the harmful effects of such emergencies by hedging against other cryptos when markets are experiencing a decline. This helps traders and users to liquidate their digital assets. Once the price again stabilizes, they can re-enter. 

Mainstreaming of DeFi and Various Applications

Stablecoins have multiple applications in real life and can mainstream decentralized finance significantly. Mainstreaming eventually may lead to wider acceptance and break free of the monopoly of central banks and governments. This in turn can deliver financial freedom to a large section of the populace excluded by traditional finance. For example, stablecoins can be used to pay salaries quickly and help in faster international settlements. It can be used as a unit of accounting, artificial gold, store of value, medium of exchange, and performance measurement of cryptos. Pegged lending, decentralized apps, and remittances are some of the other important applications. 

Also Read- How do Macroeconomic Factors Affect Financial Freedom?

Bottom Line

Stablecoins are an essential part of decentralized finance but also have some features similar to traditional financial instruments. It has numerous advantages and can assure many risk-averse investors of volatility. However, the future of stablecoins and much of its potential also depends on the regulations and rules that may become more uniform in the future. In the US for instance, the government has a more favorable opinion on stablecoins than other forms of cryptocurrencies. The growth of digital currencies may also boost its popularity.

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