It’s human nature wanting the opposite of what we get, hence the famous saying ‘opposites attract’ – and that couldn’t be truer when it comes to the world of crypto.
In times of market volatility, many want the exact opposite. People want stability, security and familiarity. That’s why the boom in savings accounts, more commonly known as “savings safes,” has seen massive user adoption in recent months.
But how did they come about and what made them possible?
Stablecoins are a type of cryptocurrency programmed to track the value of another asset like government money or gold. There are many types of stablecoins, but here are the three most common:
Commodity backed stablecoins: These are stablecoins linked to physical assets such as precious metals, oil, and real estate, with the most popular stablecoin asset being gold.
Example: Paxos Gold – each PAXG token is redeemable for one troy ounce of gold kept in vaults by Paxos.
Stablecoins guaranteed by Fiat: These are stable coins that are backed by an underlying government currency (such as the US dollar or the euro) stored in a traditional financial institution.
Example: USDC – a stablecoin made by Circle and Coinbase. Both companies have achieved regulatory compliance and the stablecoin is fully backed by a one-to-one value with an actual US dollar.
Crypto-backed stablecoins: These are stable coins backed by other cryptocurrencies. To reduce the risk of price volatility, these stablecoins are often oversized (150% to 200%) so that they can absorb collateral price fluctuations. For example, a collateralization rate of 150% means that you can only take out a loan of $ 1,000 when you put up as collateral for $ 1,500 of ether.
Example: DAI – a stablecoin with a value pegged to $ 1. Yet unlike stablecoins guaranteed by fiat, its value is backed by ether, not fiat.
Therefore, stablecoins are only a digital version of an asset or fiat currency and are linked to that particular asset or currency.
The Backbone: Why Is It Important? (Challenge)
With this creation of stablecoins comes the formation of a whole new world, the wonderful world of decentralized finance, or DeFi.
DeFi refers to an ecosystem of financial applications that are built on blockchain networks. These financial applications aim to create an open source, unauthorized and transparent financial services ecosystem accessible to everyone. It also works without any central authority which makes it even cooler!
Simply put, DeFi aims to democratize finance by replacing existing centralized institutions with peer-to-peer systems – no middlemen here! And what’s even better is that these systems can provide a full range of financial services similar to the institutions they aim to replace, while giving you more control over your money in the process.
DeFi challenges our current centralized financial system by relieving middlemen, middlemen, and gatekeepers, and allowing ordinary people to interact with each other directly through peer-to-peer exchanges.
DeFi is powered by decentralized applications called “dApps” and other programs called “protocols” – both of which handle all transactions in the world of DeFi.
The Product: How will it help me save money?
Protocols and dApps allow the birth of the “savings vault”. Unlike a traditional savings account, a savings safe uses these protocols to give you the full return you deserve. Here’s how it would play out on a basic level.
“Today you can put your savings into an online savings account and earn 1% interest on your money. The bank then turns around and lends that money to another customer at 5% interest and pockets the 4% profit.
With DeFi, people lend their savings directly to others, eliminating that 4% lost profit and allowing you to earn the full 5% return on your money. Explained Brett Hope Robertson, Investment Analyst at the Investment Platform Revix.
Finally, you get what you pay for!
Currently, the rate for US dollar savings accounts is around 0.6%, while equivalent savings boxes, such as a USDC Savings Chest, can offer between 2% and 8% / year.
South African advantages
South Africans have a unique need for exposure to the US dollar, and this is simply due to the fact that over the past 50 years the rand has depreciated by about 6.2% per year against the dollar. . In fact, it has been around -7.7% / year for 10 years.
but what does that mean?
This means that it is becoming increasingly difficult for South Africans to accumulate international wealth while saving in a currency that makes them 6.2% poorer each year.
“Despite the strengthening of the rand in recent months, South Africans are still grappling with a depreciation of the rand over the long term. An average depreciation of 6.2% actually translates into a loss of around 70% of your international wealth in just 20 years. It’s a serious problem that many don’t understand, ”said Hope Robertson.
Stables and savings safes can help stop this erosion of wealth and make it work for you, not against you.
By using these savings boxes, you can gain exposure to the US dollar while earning an additional 2% to 8% return on your US dollar stablecoins. Therefore, you win twice – one by not holding a depreciating currency (6.2% gain) and two, by gaining an additional 2-8% on those assets.
Assuming you got 8% on your savings vault, this double gain would have resulted in a net return of 14.2% on your rand. It’s a substantial return for something that has been steadily cultivated.
Where to find these products?
The Revix investment platform publishes a USDC Savings Chest on Friday July 23, 2021.
It is a flexible savings account denominated in US dollars that offers a well above market interest rate (before 12 months: 4.27%) with no lock-in period.
Unlike traditional banks, Revix does not offer you a reduced interest rate on your money and does not keep your interest until the end of the month. Instead, the full interest will be returned to you directly second by second.
So if you are looking for rand coverage and a stable way to grow your wealth then this product is for you.
Visit Revix today and start saving.
This article is intended for informational purposes only. The opinions expressed are not and should not be interpreted as investment advice or recommendations. This article is not an offer, nor the solicitation of an offer, to buy or sell any of the assets or securities mentioned in this document. You should not invest more than what you can afford to lose, and before investing, please consider your level of experience and investment goals and seek independent financial advice if necessary.
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