A Solution To Inflation And A DeFi Enabler?

A stable currency will maintain its purchasing power over time

Most of the world’s fiat currencies have high rates inflationDue to which the purchasing power of the consumers decreases. To protect their savings from depreciating due to rising prices, people have to find better investments with today’s record-setting inflation rate.

Some claim that cryptocurrencies can mitigate the effects of hyperinflation, but few scenarios test this theory. Bitcoindoes not support this belief. in fact, the country of El Salvador To date he has lost over $60M on his BTC bets.

Cryptocurrencies have not yet been shown to completely eliminate hyperinflation, but they may be able to reduce it.

Nevertheless, there is optimism in the introduction of a new class of stable coins that could counteract the looming effects of inflation.

How Stable Coins Are Supporting Decentralized Finance

stable coins have become the basis of DeFiSince most dApps and smart contract applications – including market making, collateralized lending, derivatives, asset management and many other decentralized financial tools, services and protocols – rely heavily on stable coins to reduce friction in their users’ experience, Huh.

Examining the Worldwide Effects of Stablecoins

Stablecoins have created opportunities for people around the world to save, access, and use their capital in ways that were not possible before, especially in countries that mostly lacked banking services.

As a result, individuals in many developing countries now have a safe and practical way to participate in international financial markets.

Stablecoins have made a major impact on international money transfers, making it easier and more affordable for foreign workers to send money to family members living in developing countries.

Many people learned about stablecoins recently from world news, which highlighted how difficult it is for governments to abuse and suppress the financial system.

Stablecoins offer many advantages, but their algorithms have not developed as rapidly as other areas of cryptocurrency. Furthermore, rising USD inflation has caused new issues for stablecoins.

stablecoin puzzle

The majority of stable coins are essentially equivalent to some form of fiat currency, which is at the core of the rising cost of living. As such, they experience similar monetary inflation. As the purchasing power of fiat currency decreases, so does the purchasing power of its associated stablecoins. getting good though DeFi While the returns on your stablecoin may be attractive, you still need to factor in inflation, which is currently at 7.5% annually.

There is one additional peculiar circumstance: as more institutions start investing in crypto-currencies, the use of stable coins has increased significantly. Nevertheless, some fiat currencies, such as the USD, no longer have assets backing their value.

If most of the planet stopped using the USD, its value could potentially drop to 0. security The value of the dollar is related to how intensively it is used around the world. Comparatively, when there is a large flow of money in circulation, it tends to be more volatile.

Challenges to Bitcoin Adoption

We spoke with Aki Balogh, Founder and CEO dlc.linkA bitcoin application startup based in New York City.

“Bitcoin was created as a censorship-resistant digital asset that exists outside direct government control. But bitcoin is challenging for non-technical users to adopt and its wild volatility Planning becomes difficult with swings.

Stablecoins are easy to understand and buy and use, which has made them the digital asset of choice for non-technical users. Stablecoins do add some security risks, as the networks they run on can be compromised, but these risks pale in comparison to the problems inherent in existing banking systems in developing countries.

Next-Gen Inflation-Adjusted Stablecoins

The use of algorithmic stable coins has become more popular to combat inflation. Rather than replacing fiat currency, they exist alongside it.

The Volt protocol includes a loan mechanism with associated natives. stablecoin Known as VOLT. Customers can keep the token stable by linking it to the Consumer Price Index (CPI). For example, if inflation is maintained at a rate of 7% over one year, the token will be valued at $1.07.

Why it is important to refine the CPI

The Consumer Price Index (CPI) tracks the real value of a currency in an economy based on what people are buying. It’s calculated by the US Bureau of Labor Statistics who go out and look at prices on a variety of items, then tally them up. It is also how the Federal Reserve System monitors inflation.

At present, the US government releases inflation rates once a month with a delay of more than a month. The validity of their data, their lack of transparency, and potential conflicts of interest have been strongly criticized by scientists around the world – and legitimately so.

For current and future stable coins and other inflation hedge solutions, reliable, consistent data on independent on-chain inflation is essential. Obtaining this information from reliable public sources will help investors understand how any changes in inflation trends may affect their purchasing power, investments and the cost of goods in the future.

independent on-chain inflation data

Eventually, the static CPI will replace the way we view the real CPI. The two parts make up the hybrid algorithmic system. The first part tracks the inflation rate, while the second adjusts DeFi yields based on external sources of on-chain inflation data such as TrueFlation.

TrueInflation is a crypto-native US inflation index based on reliable, transparent data sources and calculations. It provides a more accurate and current understanding of US inflation by publishing daily inflation data to the blockchain for use in smart contracts and DeFi solutions.

Targets are an efficient way to collect real-world price information. This information will be used to monitor the value of the stablecoin and make automatic adjustments. In the next phase of the project, there will be more efficient ways to invest in and protect against inflation.

related

Crypto investors are cashing out: Over $3.5 billion worth of stable coins were redeemed

Japan’s FSA Will Classify Algorithmic Stable Coins Similar to Bitcoin

Coinbase CEO Says Stable Coins Linked to the Consumer Price Index Could Be a Thing in the Future

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