Implications of Asset-backed Stablecoins in the DeFi Space
(Photo : Implications of Asset-backed Stablecoins in the DeFi Space)

The need for reliable, reputable Stablecoins to help balance and maintain the health of the Decentralised Finance (DeFi) space is more important now than ever, as rampant growth in the space and Total Value locked figures continue to rise across the industry. The stablecoin market is constantly evolving, with established and emerging assets competing for widespread adoption and usage in the DeFi space. 

EURST, a live audited asset-backed stablecoin, is now staking a claim as a leader in the new generation of stablecoins. EURST is the first largest live-audited, USD-backed stablecoin globally, secured by the Federal Reserve and Wallex Trust accounts. The existence of a physical, real-time audited and redeemable USD reserve will effectively peg the market value of EURST tokens to a real currency value of €1 in USD. The EURST token is 100% collateralised, with all assets held in a secure escrow account. 

EURST differs from traditional Stablecoin markets, which include collateralised Stablecoins, which are backed by real-world assets, and algorithmic Stablecoins, which aren't. Instead, algorithmic Stablecoins are balanced and minted based on the supply and demand of a platform. Both types of Stablecoins intend to hold a 1:1 peg to a FIAT currency such as USD or EUR. 

However, they both face issues when it comes to maintaining a reliable peg.

Collateralized Stablecoins such as USDT, backed by a FIAT reserve, helps maintain a 1:1 peg as assets can be minted and brought back from the reserve. Issues arise as they often rely on a "centralised" reserve of assets to maintain a peg, which means sudden regulatory oversight or changes can cause deviations and uncertainty in crypto markets. 

As a result, relationships with banking partners can be affected and can stress the stability of a Stablecoin, mainly when the collateral that backs an asset consists of illiquid forms of assets such as promissory notes and low cash reserves. Algorithmic Stablecoins can struggle with over-collateralisation of the asset and struggle to maintain a peg during market pullbacks. They rely heavily on actual token usage and interaction with smart contracts for access to instant liquidity. Hence, users can be left potentially exposed to unnecessary risk and instability.

In the DeFi space, reliable pegs in the stablecoin market are imperative for ensuring that DeFi platforms maximise returns for users and provide the necessary incentives to lock up their stable assets. Collateralized Stablecoins are the most-used option in DeFi due to their volume, instant liquidity and reliability when maintaining a peg.

They're also essential for bringing balance to DeFi protocols by allocating transaction fees and rewards fees for those who lock their assets in a particular platform. A vast majority of transactions on DeFi protocols use Stablecoins as the primary asset, with prizes distributed in these assets, coins traded against them or users simply choosing to convert their yield rewards into stable assets. Due to the importance of stable assets to the DeFi space, they need to provide extremely high volume and retain high liquidity, making them ideal instruments for stable, safe assets for DeFi protocols.

The EURST token is issued on the Ethereum network and abides by ERC20 standards. EURstablecoin uses a proven centralised model to fully back every token issued with an equivalent unit of real currency (US dollars) in a real-time audited and transparent reserve managed by Wallex Trust, the central issuer of EURST tokens, as well as our fiduciary custodial

partners. In addition to regular third-party audits, all transactions are recorded on-chain, and all off-chain transactions alongside reserve balances will be made available at frequent intervals. 

'We are very excited about the launch and to present new opportunities for a Better Economy. EURST can be used as a logistical background to represent the Euro; this is very exciting.'

- Simone Mazzuca, Founder & Director of EURST

The capabilities of EURST highlight when applied to the DeFi space and its deep pool of products. Through the advent and use of blockchain technologies, EURST remains fully transparent through regular audits, ensuring that liquidity and the perceived value of the token don't deviate from the norm. 

Due to the high liquidity and volume offered by stablecoins like EURST, it can incorporate itself seamlessly into major payment systems alongside the breadth of the DeFi industry. Stable assets remain an imperative asset for exchanges and DeFi platforms to acquire and provide high liquidity for users, given they are a widely traded asset. These users can then hold their assets in EURST on any DeFi platform and remain assured that their assets can be exchanged at any time, instantly, without any liquidity issues. 

Doing so instills confidence in the asset and creates a "safe-haven" asset effect where users turn to the asset in times of uncertainty in crypto markets. It also encourages the active trading and ownership of EURST tokens, which inevitably fuels further growth for both the protocol and the asset due.

Stablecoins like EURST bring instant, borderless payment and remittances to users, with easy access to global markets and users through blockchain and the function of the asset. Stablecoins also get near-instant settlement times, speed and a 24/7 approach to settling transactions due to the open, "always-on" nature of crypto.

The use of Stablecoins allows for more open, decentralised protocols to use as a stable payment method for DeFi products across the industry. Due to the high-yield opportunities presented for Stablecoin lending on these protocols, EURST further incentivises its users to its tokens as they're provided with the unique opportunity to earn passively on their hold and locked assets on DeFi platforms.

Unlike the standard deviations in prices of significant assets like Bitcoin and Ethereum, the stability provided by assets like EURST presents a vast number of advantages and facilitates growth within the crypto ecosystem. Now, as DeFi platforms continue to grow and more value is secured, it's clear that assets like EURST and their proven, audited backing can bring real, tangible value and security to the DeFi space. 

Additionally, as the entire Cryptocurrency industry develops further, more reliable Stablecoins such as EURST will be needed to help secure platforms, enable consistent, instant liquidity to users and maintain the long-term sustainability of a DeFi protocol.

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