Just hearing the word “stablecoin” do you wrinkle your brow and make an effort to figure out what it is? Don't worry: this is the case for around 90% of the people we meet in everyday life. And yet who want to understand this sector that has gained a significant weight in global finance.
So we had the idea to write this short guide to get started.
A stablecoin is a type of cryptocurrency - we prefer the term digital asset - that replicates the value of a traditional asset. It can be the euro, the dollar, gold, silver, oil...
For example, the EURS stablecoin is worth 1 Euro (+/- 0.50%).
That is why it is said to be stable.
It is therefore different from a Bitcoin or an Ether whose value fluctuates constantly.
A stablecoin allows you to transfer money easily and very quickly.
To send EURS to someone anywhere in the world, the experience is similar to sending an email: you must enter the recipient's address composed of 42 alphanumeric characters and validate the security check. The recipient receives the funds in under 5 minutes.
It does not go through any bank, it is completely decentralized on the blockchain. The operation is recorded there unchangeably. The wallet address in 42 characters and the amount are information that can be seen by anyone.
Currently on Ethereum, which is the main global blockchain, the cost is around €50/transaction, regardless of the transaction amount.
On recent blockchains called “Layer 2", the cost is less than €0.10/transaction.
As of 24/03/24, the total capitalization of stablecoins is 148 billion dollars (Live tracking here).
The US dollar crushes everything, the weight of stablecoins that replicate the USD being an ultra-majority. Euro stablecoins weigh less than 1 billion.
Exchanges are impressive compared to capitalization. There are 170 billion dollars per day in transactions on stablecoins (yes per day, so more than their total value in circulation).
They are guaranteed (“collateralized”) up to at least 100% by other assets when they are issued.
For example:
2 ️ Algorithmic stablecoins
They are simple computer codes designed to replicate the value of their underlying. There are no collateral assets. They are fragile and are in fact an endangered species. UST is the most famous of these algorithmic stablecoins, it exploded in flight in May 2022 and it was well deserved.
We recommend working only with semi-algorithmic stablecoins because they rely on guarantees.
There are 3 main factors:
In addition, when you place stablecoins in liquidity pools, you can boost the yield using the staking mechanism.
The era of the Wild West is over and that's good, everything is rapidly becoming professional. The FTX scandal is before the judges, and its boss is in prison, Sam Bankman-Fried (the “fried banker” can't be invented...)
In the EU, there is the “MiCA” regulation for Markets in Crypto-Assets which is gradually coming into force in each Member State. France has been particularly at the forefront in recent years, with French regulations having partly inspired MiCA.
In the United States, things are also being structured: the SEC requires players in the sector to respect financial laws (happy again!). In January 2024, it approved Spot Bitcoin ETFs, in particular that of Blackrock, which has already reached 15 billion dollars collected (Read article here).
Placing stablecoins allows you to receive returns > 10% /year when you do it yourself. Interest is paid continuously. We can also see its wallet growing in real time. But you have to know how to manage transactions from a wallet, and follow the evolution of conditions.
We wrote this article”How to benefit from the performance of stablecoins“that explains how to manage yourself.
The ultra-simple alternative if you don't want to manage it yourself is our Eco account, for businesses and individuals.
All you have to do is make a transfer in euros, and then the balance increases every day.
By making a deposit, the client becomes the owner of a diversified portfolio of collateralized stablecoin assets:
The customer does not have to pay for any subscriptions.
Our business model: we keep the part of the return that exceeds the part received by the customer.
By choosing to work only with collateralized stablecoins, you limit potential problems, but they do not disappear completely.
Particular attention should be paid to the fact that the value of the stablecoin does not fall behind the value of its underlying asset. We're talking about “depeg.”
It becomes very low if you carefully select stablecoins whose guarantees are verifiable.
Attention should also be paid to the platforms on which stablecoins are invested.
Always check the URL for connecting to the platform.
And platforms must be carefully selected according to their age, size and security certifications by independent audit companies.
It is a central element in the added value of our product.
We perform a detailed analysis of stablecoins, platforms, liquidity pools, and return protocols that we integrate into the Eco account. And we monitor them on a daily basis.
We apply diversification rules, with investments being spread over 15 different products.
To buy the assets and keep them, we use Fireblocks in our architecture, which is the world leader in security for these operations.
Access to our wallets is secured by multiple factors.
And of course we have a multi-signature system for each transaction.
We recommend investing between 5% and 10% of your assets to take advantage of these returns without overexposure.
Capital is not contractually guaranteed. By making an investment of $100 today on the Eco account, we are confident in its ability to reach at least 135 in 5 years (while maintaining liquidity 48 hours at all times), but as always, you should not overexpose yourself to one type of investment.
In any case, it is a good time to diversify your assets on stablecoins, with a particularly interesting risk/return combination.
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