What is DeFi and How Does it Work? Why is Stacking USDC Beneficial?
The emerging financial system built on top of blockchain systems such as Ethereum, combines concepts from traditional finance with the new opportunities which open up through these decentralized networks. One of these concepts is the Decentralized Finance or DeFi system.
What is DeFi
The concept of DeFi is based on the idea that finance can be done more effectively without intermediaries such as banks. This means that people can lend directly to each other and that borrowers don’t need a bank account. Since DeFi deals with finance, the network is built on blockchain technology and uses smart contracts.
As DeFi transactions happen on the blockchain and do not require the use of a bank, users don’t need to go through KYC / AML compliance. This is an important benefit for many individuals and institutions as they cannot trust certain banks with their assets due to fear of them being frozen or seized by governments.
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What is USD Coin (USDC)? Everything You Need to Know
USDC stands for “USD Coin.” It is a stablecoin, meaning its price does not fluctuate much. This is helpful for people who own USDC because their money will be protected from the volatility of cryptocurrencies.
USDC exists on the Ethereum network. It is decentralized, meaning it can be transferred without intermediaries (like Coinbase). USDC functions similarly to Bitcoin in that it can be sent and received from other addresses. However, it is different because its value is 1:1 with the USD.
The value of each USDC coin is linked to and backed by an actual USD held by a central entity, not a cryptocurrency that has no real-world value. As the number of USDC increases, so does its market cap. This makes USDC a reliable crypto asset that is protected from cryptocurrency volatility.
USDC is the only digital currency that has been proven to have a stable value measured against fiat. In fact, USDC has been used in many instances to stabilize Bitcoin’s price fluctuations. This is because many digital currency exchanges are using USDC to keep their value stable while allowing other currencies to have an opportunity to grow.
USDC interest rates are higher than those of traditional trading accounts, as long as there’s money in the Coinbase wallet. For every $1,000 held by a user, they will earn approximately 4% annual interest after one year. You get higher interest by stacking USDC than the equivalent amount of USD on your traditional bank account. This is because your traditional bank account is bound to the Federal Reserve rate, which currently sits at 0.25% APY.
Why is Stacking USDC Beneficial?
Stacking USDC allows people to store money in a form that remains relatively constant. Stacking also enables them to avoid the fees that go with transferring USD into and out of exchanges. This may be appealing for people who are just getting started or have little cryptocurrency experience.
USDC is issued by Coinbase, which means that anyone who owns it has a way to buy more cryptocurrencies. It works similarly to PayPal, meaning people can purchase Stellar Lumens (XLM) with USDC on Coinbase. The main benefit of stacking USDC is the security of knowing your money won’t depreciate if you convert it back into USD or use another cryptocurrency to buy things.
