Within the cryptocurrency and decentralized finance (DeFi) ecosystems, there is a notable lack of access to stable, high-quality collateral beyond stablecoins. Currently, crypto and DeFi traders often resort to using volatile assets such as bitcoin or ether as collateral for various purposes like loans, staking, and liquidity pools. While this system can be effective, it also brings significant risks due to the unpredictable nature of these assets, which can experience drastic fluctuations in value within short time frames. As a result, traders often have to over-collateralize their positions to mitigate these risks.
One alternative approach involves using stablecoins as collateral, but this typically only results in earning a yield for the stablecoin issuers or select market participants through opaque yield-sharing agreements. This limitation highlights the need for stable, high-quality collateral options that can provide greater stability and security for participants in the crypto and DeFi spaces.
By introducing more stable, high-quality collateral options, the crypto and DeFi ecosystems can reduce the reliance on volatile assets and minimize the risks associated with price fluctuations. This, in turn, can help to create a more stable and secure environment for traders, lenders, and liquidity providers within these ecosystems.
