By DODO co-founder Diane Dai.
Without community-managed stablecoin, DeFi would not be able to achieve its goal of a more decentralized, community-centric financial system.
Since the advent of decentralized finance (DeFi) a few years ago, its creators have steadily fulfilled their promise to reinvent the financial system. For each brick, DeFi is rebuilding finance as an open landscape with equal access to everyone. And people are using it. The capital of the DeFi system, also known as TotalValueLocked (TVL), increased by 177% last year alone.
The expansion of DeFi has also affected other aspects of the digital asset economy. Specifically, some analysts point out DeFi as one of the main reasons for Stablecoin’s total market capitalization to exceed $ 170 billion, with a 388% increase in total stablecoin supply throughout the year. doing. It is no exaggeration to say that these assets play a systematic role in DeFi, despite the lack of statistics on the number of stablecoins reflected in TVL figures.
Nevertheless, there is a gap between the spirit of DeFi and the nature of the largest stablecoin on the market. In fact, many major stablecoins, such as Tether (USDT) and Circlecoin (USDC), are managed by private, centralized enterprises. Moreover, excessive reliance on these stablecoins is the continuation of the deep and inseparable relationship of traditional finance with the US dollar as a fundamental element. Most centralized stablecoins are associated with the US dollar, so using them only duplicates this excessive dependence in a decentralized way.
To realize the financially revolutionary DeFi potential, the means used to transfer and store value must be as decentralized as the platforms that house them. Therefore, creating a truly decentralized and secure DeFi ecosystem requires widespread adoption of stablecoins managed by a decentralized community, also known as branded dollars.
Why is Stablecoin so important in DeFi?
Outside the industry, DeFi is commonly associated with the volatility of its assets. In 2021, some DeFi tokens generated multiple 3- or 4-digit returns. Others suffered a dramatic depression as well.
For many in this volatility world, stablecoin is the key to price stability. These serve as a safe and easy-to-use way to maintain consistent value. Stablecoin also plays an important role in how value is transferred throughout the DeFi universe. Stablecoin is often the currency of choice when it comes to sending and spending funds, especially when multiple blockchains are involved. And it’s not just about maintaining and transferring value. Stablecoin holds the key to profitability by participating in many yield-generating DeFi platforms and practices such as lending protocols, token sales, and decentralized exchanges.
So, if the use of centralized stablecoin in DeFi has been high in the past, and is still the case today, why is it so important to adopt decentralized stablecoin? The answer lies in understanding the risks inherent in all centralized systems.
Why does DeFi need decentralized stablecoin?
If the house stands on a single support beam, the harm that comes to the beam will weaken the house – no matter how strong it is, if this single support point is compromised, the house will collapse. Houses on many beams are much more elastic. Similarly, the disadvantage of centralized systems is that they are vulnerable to a single point of failure. In contrast, distributed systems are more secure because they have an extensive support network.
No matter how secure Stablecoin is, it is vulnerable to cyber attacks, regulatory changes, server breaches, and anything else that centralized financial institutions have. Distributed Stablecoin, on the other hand, has no third-party authority or intermediaries, no single point of failure, and is owned and controlled by the user.
This is especially true in the context of branded Stablecoin, a decentralized cryptocurrency built and used by specific communities and platforms. These types of stablecoins promote the concept of a self-sustaining DeFi system with ultimate governance for the currencies that users use at the most detailed levels.
For example, the DODO team recently worked with ICHI to introduce oneDODO, a community-managed stablecoin that provides a decentralized alternative to the highly centralized options currently available. This recent governance gives communities more control over their destiny.
In addition, many centralized stablecoins provide some degree of transparency, but their operation is done in a closed room. Like all DeFi products and services, Decentralized Stablecoin is completely open source. This gives the user a transparent understanding of the internal mechanics.
Stablecoins, like any other DeFi, needs to be decentralized
This level of resilience and transparency is ultimately why Stablecoin, managed by a decentralized community, must become the standard for DeFi. You can’t continue to rely on the centralized system that makes up the flawed financial system that DeFi is trying to reform.
In fact, without decentralized stablecoin, DeFi innovators run the risk of replicating the same vague infrastructure that makes up traditional finance. Their adoption will result in a safer and more open DeFi ecosystem, which will truly decentralize DeFi.
About the author: DODO co-founder Diane Dai is a prolific innovator and sort leader in decentralized finance. Diane was also recently named to Wylex’s 2021 Rising Woman Increment Power List and Frun China’s under-thirties watch.