The examine, which focuses on Circle’s USDC stablecoin, is a part of a sequence of posts in regards to the retake by crypto analysis agency Gauntlet.
USDC affords distinctive advantages akin to collateral repossession
Restaking – the apply of staking cryptocurrencies like ether (ETH) on a number of protocols to generate extra yield – can now be achieved with ERC20 tokens, together with fashionable stablecoins like USDC.
Ethereum analysis agency Eigen Labs, the corporate behind the reprisal platform Eigenlayer, introduced the reprisal of the ERC-20 token in August.
However why would a node operator maintain a stablecoin as collateral as an alternative of one other sort of token – often a way more risky token – that generates returns? Crypto analysis agency Gauntlet just lately revealed a weblog put up explaining that utilizing stablecoins not solely improves safety, but in addition improves returns on a risk-adjusted foundation.
“There are a variety of circumstances the place the addition of stablecoins will increase risk-adjusted returns for node operators whereas decreasing volatility within the quantity of community safety,” the weblog put up mentioned.
Primarily, regardless that stablecoins don’t immediately generate returns, they’ll supply decrease financial danger for node operators, leading to greater returns when danger is taken under consideration.
An instance of such a danger, the put up states, is when a malicious entity takes benefit of corruption ensuing from risky belongings, generally known as a “corruption assault.”
“Low volatility stablecoins akin to USDC are essentially the most strong alternative towards corruption assaults in a single-collateral state of affairs,” the put up continues.
That benefit of stablecoins additionally extends to multi-asset collateral, in response to Gauntlet, even when the worth of the collateral drops considerably from its peak value, a state of affairs generally known as a drawdown.
“Even in circumstances the place ETH experiences giant drops (such because the 22.5% drop ETH skilled on August 4, 2024), stablecoin collateral can nonetheless defend financial safety by making corruption assaults prohibitively costly,” the put up mentioned. “This can be a distinctive characteristic of stablecoin collateral that isn’t supplied by every other collateral sort.”
Jeremy Allaire, CEO of Circle, the corporate behind USDC, praised the analysis, saying that “USDC is changing into basic to the financial safety of cryptocurrencies.”