Deep Dive: Stablecoins and Hubble's USDH

"USDH can be used in the same way as many other stablecoins on the market. It can be used as a store of value, traded on a DEX, or paired as liquidity in an AMM's liquidity pools. However, few other stablecoins on the market are put to use in the same way as USDH."

Deep Dive: Stablecoins and Hubble's USDH
An Overview Of Crypto Stablecoins And The Mechanics Behind Hubble’s USDH

Stablecoins play a fundamental role in decentralized finance (DeFi). These digital assets are usually pegged to the United States dollar (USD), and their theoretically fixed price means stablecoins are often used as a store of value or as a means for generating dependable yields.

There are many kinds of stablecoins available on the market, and although they all strive to rest at $1.00 values, the way they work is about as varied as the projects that back them. Just as ETH is different from BTC, no two stablecoins are 100% alike.

This article provides some essential information about stablecoins and tries to guide readers towards a basic understanding of their place in DeFi and the overall crypto market. It will also take a high-level approach to explain how stablecoins work and why participating in DeFi invariably means crypto users will need to own stablecoins at one point or another.

Stablecoins have a relatively young history, even for crypto standards, and looking at where they came from and the future of where they are going is something we think every user who possesses stablecoins should understand. We also would like to explain why Hubble puts its full faith and trust in USDH for the DeFi long haul, so the article ends with an explanation of how Hubble mints and pegs USDH.

The Importance of Stablecoins in DeFi and the Overall Crypto Market

Side by side comparisons of charts that trace the growth in market cap for stablecoins and the growth in total value locked (TVL) for DeFi demonstrate a similar pattern. Both values begin rising at the same time, and they draw similar lines across their respective graphs as they increase lockstep. Even though DeFi’s TVL outweighs the market cap of stablecoins by another $100 billion, the correlation is still there.

Next, looking at the Top 100 cryptocurrencies measured by market cap, it becomes clear that stablecoins have become a huge presence within the crypto market over the last year. The daily trading volume for the stablecoin Tether (USDT) is consistently the highest trading volume in all of crypto, and this volume is usually twice that of its closest competitor, BTC.

In fact, the trading volume for USDT is often higher than its entire market cap. Now, although USDT is by far the most widely used stablecoin on the market, it’s not the lone stablecoin standing at the top of crypto’s Who’s Who.

There are currently three stablecoins in the crypto Top 20: USDT, USDC, and BUSD. It should be noted that during the bearish market conditions experienced from late spring through the summer of 2021, these stablecoins were all in the Top 10, and when dynamically priced crypto assets are underperforming, stablecoin use seems to follow a rising trend as more users move their positions into stables.

It's much easier to swap a token that is busting through the charts for stablecoins than it is to sell crypto for fiat.
It's much easier to swap a token that is busting through the charts for stablecoins than it is to sell crypto for fiat.

Why People Use Stablecoins

For many newcomers to crypto trading, stablecoins can seem like a very uninteresting asset to hold. Why would anyone want to purchase crypto that never changes in price, crypto that never goes up? Isn’t the point of buying and selling volatile digital assets trying to acquire as much upside as possible?

Capturing Value

Before stablecoins arrived in the crypto market, anyone trading dynamically priced tokens would have to offramp their gains into fiat in order to preserve the value of their tokens when they reached a high. Otherwise, users would have had to trade their mooning tokens for other dynamically priced tokens and hope that their newly acquired assets wouldn’t dip and rob the gains made from a green candle.

Today, crypto traders can realize gains and keep their assets on the blockchain by swapping dynamic cryptos for stablecoins, which theoretically hold a value pegged to the dollar.

Earlier in 2021, BTC rose to a new all-time high, and those who swapped their BTC for stablecoins managed to capture much more value than those who held and watched the price drop 37% in May.

It’s much easier to swap a token that is busting through the charts for stablecoins than it is to sell crypto for fiat. Once a mooning token’s price settles back down, then it’s much easier to swap stablecoins back into a lower-priced token. Of course, a mooning token could always continue on its meteoric rise after it’s swapped for stablecoins, but that is a risk every trader takes when they opt not to HODL.

Decentralized Token Swaps

Uniswap introduced the concept of the automatic market maker (AMM) with the launch of its decentralized exchange (DEX) in 2018. Since then, DEXs have become an extremely important DeFi service, as they allow users to swap their tokens in a permissionless way and bypass intermediaries, such as a centralized exchange (CEX), and their fees.

The fees collected on a DEX are shared with liquidity providers who deposit pairs of tokens that enable other users to make their trades. A small percentage of each swap is charged as a fee that is awarded to liquidity providers, and this creates a stable flow of passive income for users whose participation makes the whole system work.

Often, these pairings include a stablecoin to reduce the risk of impermanent loss (IL) and to also reduce the amount of routing necessary to complete a swap. Pairing two dynamically priced assets can increase the risk of IL when paired token prices diverge, and since a stablecoin neither rises nor falls in value, pairing assets with a stablecoin hedges against this risk.

DeFi Borrowing

Traditional finance (TradFi) and DeFi depend on stable and fungible stores of value in order to provide many of their services. Trying to run a financial system on dynamically priced assets like SOL and BTC alone would prove to be an exercise in madness as their values rise and fall dramatically over time.  

A hard lesson was learned in TradFi, recently, by the nation of Hungary when many of its citizens took out loans in one asset, Swiss Francs, that were to be repaid in another asset, the Hungarian Forint. The Franc rose while the Forint dipped, and the banking system in Hungary has since been ravaged by the fallout.

Crypto is, of course, a volatile market, but participating in DeFi can be a way to dampen this volatility and grow sustainable wealth over time. Financial plays can, of course, be made involving assets with dynamic values that rise and fall in opposite directions, and this can lead to crazy gains as well as crazy losses over a short period of time.  

However, Hubble’s mission is to foster sustainable DeFi practices for long-term growth. A key to this sustainability is introducing our stablecoin, USDH, to steady the ship as our users explore the expanding DeFi universe built on Solana.

HODL is more than a meme. It's considered the best strategy for maximizing gains over time.
HODL is more than a meme. It's considered the best strategy for maximizing gains over time.

Stablecoins like USDH fill the gap in DeFi that is otherwise filled by other stable monetary instruments within TradFi. Furthermore, stablecoins have become an intrinsic and important element of DeFi as it has grown into a financial sector that continues to gain traction and build momentum towards mass adoption.

Some of the oldest and most basic financial services in the world involve borrowing and lending. Through DeFi borrowing and lending, users can deposit their crypto into a platform like Hubble Protocol and borrow stablecoins against their deposited collateral.

When users borrow stablecoins, they can still HODL their dynamically priced tokens and wait for them to appreciate in value. This allows DeFi participants to HODL without sacrificing opportunities for reinvesting the capital trapped in the tokens they don’t want to sell.

HODL is more than a meme. It’s considered the best strategy for maximizing gains over time. In terms of the stock market, HODLing is no different from value investing, or what Warren Buffet would call his favorite trading strategy.

A value investor trades for stocks from companies that they believe will stick around for many years, are undervalued, and will eventually appreciate in price. In the same way, a HODLer trades for tokens from projects they believe will stick around for many years, are undervalued, and will eventually shoot to the moon.

As a value investor, selling stocks that have not reached their full potential is a losing proposition. The same goes for HODLing crypto. Sometimes, people need capital on hand, and sometimes people just want to explore further opportunities for acquiring wealth, so they can use their assets as collateral and borrow against them for a loan through a process called hypothecation, or borrowing on margin.

DeFi users can pursue a similar process by interacting with a DeFi protocol, depositing their assets with the click of a button, and withdrawing stablecoins with another click at any time of day. It’s the kind of user experience a bank doesn’t provide most clients at four in the morning, and since DeFi operates as a permissionless system, anyone is allowed to participate.

The basic function of Hubble’s first phase is to allow users the opportunity to capitalize on a crypto market full of opportunities without having to sell the assets they believe have the potential to continue performing well.

By depositing SOL on Hubble, for example, anyone can mint up to 90% of the value of that SOL in USDH in order to pursue other tokens or possibilities for yielding gains through DeFi.

Payments

Paying employees in stablecoins has become the status quo for projects related to crypto and Web3. Many blockchain projects depend on funding that comes in the form of stablecoins instead of fiat or other assets, and these projects (and their employees) depend on earning an income with a stable value that allows them to plan their financial well-being.

There’s a huge downside to getting a paycheck deposited in Dogecoin on an afternoon when Doge drops 40% in value later that night. The crypto market can be incredibly volatile, so many people working in jobs at the cutting edge of tech opt for the majority of their income to be paid in stablecoins, so they can at least budget for the future.

The number of young people today who are quitting their jobs in traditional labor sectors is on the rise, and the number of ad placements for jobs in emergent fields such as crypto and Web3 is exploding. As DeFi, Web3, and other blockchain projects continue to expand and fill more positions, it’s highly probable that this labor will be paid for in stablecoins.

Consequently, stablecoins are becoming a major part of the working economy built around the growing list of blockchain startups and ventures. As this sector continues to grow, it’s possible that the use of stablecoins will increase at a directly proportional rate.

As more people receive their income in stablecoins, more things are being paid for in stablecoins. VISA, Mastercard, and PayPal have all facilitated ways for their users to make payments using stablecoins, and Harvard Business Review asserted, “stablecoins could become the backbone for payments and financial services,” in the future.

Crypto-backed stablecoins are theoretically free from censorship.
Crypto-backed stablecoins are theoretically free from censorship.

What Kinds of Stablecoins Exist Today

In this part of our stablecoin deep dive, we’ll cover the three most common ways stable coins are backed and pegged to the dollar. However, there are actually five different ways stablecoins can maintain their value: backing with fiat, backing with crypto, backing with commodities, algorithmically, and a combination of these methods.

Very few stablecoins are backed by commodities, so the mention of these tokens backed by precious metals and other assets has been omitted. Just as well, one should assume that stablecoins backed by a mixture of each of these methods do exist, but they will not be discussed at length.  

What will be discussed at some length, though, is a project that should be mentioned when taking a deep dive into stablecoins. An attempt to create an alternative to stablecoins is currently underway, and since this token has burst into the crypto Top 100 with a market cap of around $4 billion, it will be discussed at the end of this section.

Fiat-Backed

Fiat-backed stablecoins theoretically allow users to exchange their stablecoins for cold hard cash on a 1:1 basis. Fiat-backed crypto may seem like the most simple way to create a stablecoin—put cash in an account and log it on the blockchain as a token—but backing stablecoins with fiat has proven to be far from an easy task.

Minting new fiat-backed stablecoins requires reserves of cash to ensure that each token is actually worth the dollar it represents. The three stablecoins in the crypto Top 20 are all fiat-backed stables, which means companies that issue these stablecoins need to shore up a lot of cash in banks that have traditionally had an aversion to doing business with crypto. If banks don’t want to hold the fiat that backs stablecoins, then this increases the difficulty for companies to maintain a fiat backing.  

Many of the top fiat-backed stablecoins claim that their reserves of fiat hold enough cash to cover all of the tokens they have minted. Many watchdogs have doubted these claims over the years, and it’s a major point of contention in the crypto world whether USDT will one day fall apart and drag the market down with it.

When USDT first launched in 2014, its issuing company, Tether, promised that each USDT would be backed 1:1 by actual dollars. In 2019, this policy changed, and Tether’s failure to make this change sufficiently transparent to its customers earned the company $18.5 million in fines from the New York State Attorney General.

Tether agreed to pay the fines, and recent audits have shown that around 50% of USDT’s collateral exists as undisclosed commercial paper. This audit also revealed that USDT was backed by fiat to the tune of 2.9% of its collateralization, with the rest made up of funds, bonds, precious metals, and fiduciary deposits.

The news has been getting worse for Tether, and in October, it was served with a $41 million fine from the Commodity Future Trading Commission (CFTC). As for USDT’s closest competitor, USDC claims to have a much higher ratio of cash deposits, and USDC’s audits reveal that 60% of its tokens are backed by “cash and cash equivalents.”

Additional risks for fiat-back stablecoins include future regulations that could jeopardize their legal standing. If a government seizes assets from or freezes the accounts of a company that issues fiat-backed stablecoins, then there is no longer any value supporting the $1.00 accounted for by a stablecoin on the blockchain, and that could spell the end for any fiat-backed stablecoin meeting this fate.

Crypto-Backed

Crypto-collateralized stablecoins are minted with the backing of crypto assets instead of fiat. While fiat-backed stablecoins are meant to be backed 1:1 by cash, crypto-backed stablecoins are usually over-collateralized and backed 1.5:1 by the crypto tokens that support their value.

This means that in order to mint one crypto-backed stablecoin of a guaranteed dollar value, there needs to be above 100% (more realistically, over 150%) of value deposited into the protocol that mints the stablecoin.

For example, Hubble’s stablecoin, USDH, is backed by deposits of at least 150% SOL, BTC, or ETH (additional high-value tokens will be whitelisted in the future). Hubble issues USDH with a system-wide minimum collateral ratio of 150%, and this ensures that users can redeem their USDH for an equal value of these collateral crypto assets.

Crypto-backed stablecoins are theoretically free from censorship, as no regulatory body can realistically freeze a decentralized digital asset in the same way it can freeze a centralized bank account. This is one of the fundamental reasons why BTC presented a step-change in the history of asset classes.

Crypto-backed stablecoins are also an incredibly transparent kind of stablecoin, since every bit of data concerning the collateral, minting, and circulation of these stablecoins is recorded on the blockchain. Since blockchains are transparent distributed networks, this data can be checked and verified in real-time.

One of the most widely used crypto-backed stablecoins on the market today is DAI, which was developed by MakerDAO. DAI was originally backed entirely by ETH, but a MakerDAO governance vote in 2020 opened DAI’s treasury to include other assets like USDC. At one point, DAI’s backing in centralized assets like USDC rose to around 60%.

Some have criticized MakerDAO’s changes, saying that the addition of centralized stablecoins to the treasury would eventually compromise the value of DAI, and the vocal ETH maximalists among these critics may have had some valid reasons to complain, since at one point DAI was collateralized more by USDC than it was by ETH, but that situation has changed.

Algorithmically-Backed

Algorithmic stablecoins rely entirely on codes, rules, and market forces to maintain their value and stable price. Many algorithmic stablecoins have attempted to maintain a peg and intrinsic value linked 1:1 with USD, but a large number of these coins have unfortunately failed.  

One algorithmic stablecoin that has seen a lot of success recently is Terraform Lab’s Terra USD (UST). UST maintains its peg with the aid of the dynamically priced asset LUNA, which acts as Terra’s governance token as well as a mechanism for pegging UST.

Whenever UST’s peg begins to drift, an arbitrage opportunity arises for LUNA. Users can burn LUNA to mint UST, and they can do so for a profit if the stablecoin rises above its peg, similar to the mechanics of USDH. Conversely, UST can be burned to receive LUNA when UST falls below 1:1 value with USD.

During May's mini-meltdown, UST floated off peg and reached as low as $0.89.

Terra’s system that allows UST and LUNA to be traded for each other and burned is designed to handle up to $20 million in redemptions without failure. However, the events of May led to $80 million in redemptions due to the 80% drop in LUNA’s price and a cascade of liquidations on Anchor that led to people moving LUNA quickly into UST, flooding the market with UST, and reducing its price.

Concerns have been raised about UST’s endogenous algorithmic system, which means UST and LUNA are inextricably entwined in the same economic ecosystem, and they depend on each other in a similar way to how the human body depends on a liver and a heart to stay alive, and both the liver and the heart depend on the rest of the body's success to remain in business.

It’s important to point out that LUNA does not act as collateral for UST. Rather, their relationship is strictly bound to maintaining UST's peg 1:1 to USD, so UST cannot be called a crypto-backed stablecoin. It’s purely algorithmic, and as long as LUNA maintains a value above $0.00, then UST theoretically has the ability to maintain its peg.

In some ways, USDH’s pegging mechanisms resemble those of UST’s, but the two stablecoins are quite different. USDH depends on exogenous collateral, which means collateral from other ecosystems outside of Hubble like Bitcoin, Ethereum, and the Solana networks.

The crypto used to mint USDH is not burned, and instead, it is kept within the protocol to ensure there is at least 150% of value backing each USDH. Since USDH is collateralized by a basket of historically well-performing tokens from various projects and ecosystems, the risk of a black swan event affecting the collateralization of USDH is minimized by the diversification of assets behind it.    

Since algorithmically-backed stablecoins are not backed by other assets, many believe that they could serve the needs of a growing DeFi community, but they are historically the most prone to failure. While algo-backed stablecoins are a very interesting idea worth pursuing, the future of algo-backed stablecoins is still uncertain today.  

What is certain is that massive amounts of stablecoins may be necessary to secure the future of DeFi’s growth into a mainstream financial system, especially if DeFi’s use cases and popularity one day outperform the general crypto market by welcoming more users from TradFi services.

Massive amounts of stablecoins may be necessary to secure the future of DeFi's growth into a mainstream financial system.
Massive amounts of stablecoins may be necessary to secure the future of DeFi's growth into a mainstream financial system.

The OHM Story

Stablecoins are pegged to USD. At the end of the day, their value is intrinsically linked to the value of USD, which is an inflationary currency. The US dollar’s inflation hit a 13-year high in 2021, and fears of further decreases in buying power have been stoked by the cash printing policies that bolstered the markets during 2020 and the COVID economic slowdown.

When the buying power of USD decreases, the buying power of USD-pegged stablecoins decreases. There are stablecoins that are pegged to other currencies besides USD, but they suffer from a lack of liquidity, and USD is still the dominant reserve currency of the world. This leaves stablecoins little option but to peg their value to USD.

In order to hedge against the USD’s inflationary future, and in order to create a fungible token with a unit of value decided by the crypto market instead of a country’s monetary policy, OlympusDAO launched a token called OHM that aims to become a reserve currency for the crypto community.

Users are incentivized to buy OHM at a premium market price in order to benefit from a generous APY that should ensure OHM’s liquidity will rise to meet the capacity necessary for becoming a reserve token. Users who stake OHM receive much more OHM over time as the protocol compounds return on principle three times a day.

OlympusDAO backs each OHM with DAI, so the base value of their hypothetical reserve currency will at least hold the value of one DAI. The project also sells OHM at a discount to users in exchange for single crypto assets and liquidity provider tokens (LP tokens) that are deposited in the OlympusDAO treasury. This enables OlympusDAO to guarantee an OHM price above DAI’s $1.00 for a certain number of days, known as a runway, at a certain APY for staking rewards.

While OHM’s market price is now high, the equally high APY is expected to drive down the market value of OHM once it reaches a level the market no longer wants to buy. As the price of OHM falls to a number the market agrees will be OHM’s true value, the decline in price is offset for users by the rising number of tokens they receive for staking.

Game theory underpins the strategy behind OHM’s success. The notation (3,3) denotes the best possible outcome for all parties with exposure to OHM, and it occurs when all users stake their tokens instead of selling them. At the time of writing, users have staked over 90% of all OHM in circulation, and the price of OHM hovers around less than $1,000.

Eventually, if everything goes to plan, OlympusDAO will have created a token with a massive amount of liquidity that can be used, like a stablecoin, as a somewhat stable market-pegged fungible store of value.

The project is still in its early stages, and the future goals of Olympus may change since it operates as a fully decentralized autonomous organization (DAO) where its users hold votes on the future of the protocol.

The Less Than Stable History of Stablecoins

The first stablecoins were developed in 2014. USDT was one of these stablecoins to debut in that year along with bitUSD and NuBits, both of which are no longer pegged to the dollar.

In 2018, bitUSD and NuBits both broke from their pegs. Each of these stablecoins received a pummeling at the hands of the market and Bitcoin’s price action, and today the value of bitUSD hovers around $0.80, and NuBits languishes at $0.30.

Buying tokens makes their price go up, and when a ton of people are moving their BTC into the same stablecoin at the same time, this pushes the price for the token above a dollar. When traders who own many of these coins already see this value spike above a dollar, then they begin selling them, and this sell pressure pushes the price below a dollar.

Once the price dips below a certain level, something like a bank run can occur, and many traders begin offloading their stablecoins to avoid further losses. Then, the price of that stablecoin can enter into a freefall. For NuBits and bitUSD, this meant the end of their parity with USD, as neither possessed a proper mechanism for bringing them back to peg.

USDT also experienced a dramatic drop in price in 2018, but Tether only fell to around $0.90. In order to bring the value of USDT back to peg, $500 million, or 52% of Tether’s total supply, was burned. This was a drastic measure that helped save the stablecoin for future use, and if that same feat were performed today, over $35 billion in USDT would need to be burned.

Hubble leverages game theory to work in USDH's favor.
Hubble leverages game theory to work in USDH's favor.

How Hubble Maintains USDH’s Peg

USDH has been designed to maintain its peg to USD through all kinds of market conditions and events. Hubble has implemented several mechanisms that stabilize the price of USDH and ensure that its price will return to peg whenever it begins to drift.

USDH’s Price Floor and Ceiling

The face value for USDH is set at 1.00 USD. This means that USDH will always have a face value of 1.00 USD within the Hubble ecosystem. If USDH falls below a market value of 1.00 USD, users can redeem USDH for one of the dynamic assets deposited in Hubble and receive those assets at a value higher than the market price of USDH.

For example, if a user has 10 USDH priced at $0.98, they can still redeem that USDH for $10 of SOL, BTC, or ETH on Hubble instead of $9.80 worth of tokens on the market.

This gives Hubble’s users a net gain in tokens like SOL, BTC, ETH, or any of the other tokens redeemable for USDH within the protocol. The token that USDH was redeemed for can be then sold in order to quickly realize these gains, and the redeemed USDH is burned, thus removing USDH from the market and pushing up the price created by this scarcity.

This kind of mechanism was missing from other stablecoins that failed to regain their peg when they fell below parity with USD. If users can trade one stablecoin for a dollar of SOL, BTC, or ETH, and if that same stablecoin trades at a price below $1.00, then users will naturally burn their below 1.0 USD USDH for more valuable assets to make a profit.

When large sums of USDH and bots are working together to maximize profits for those who participate in this revenue-generating opportunity, this has the effect of quickly raising UDSH back to its 1:1 peg with USD.

On the other side of the peg, similar dynamic help keep USDH's peg in check. If the price for USDH rises above 1.00 USD, the market is given a huge incentive to arbitrage USDH by depositing dynamically priced assets like SOL, BTC, or ETH and minting USDH for a profit.

Practically, though, USDH should never drift outside of a very narrow band of value unless there is a complete system failure. The speed, throughput, and low cost of Solana’s network mean that arbitraging USDH will be executed quickly and efficiently, and users will consistently be able to reap profits from any of USDH's deviations from its peg.  

Hubble collects a one-time fee of 0.5% for minting USDH and redeeming USDH for other tokens, and there are no additional charges or interest levied for borrowing. This means that any time USDH floats beyond 0.5% of its peg to USD ($0.995-$1.005), there is an opportunity for users to make a profit through arbitrage and push USDH back to parity with USD.

Hubble, oracles, and bots will be able to sync information in real-time for optimized performance. Since Solana can safely handle 65,000 TPS with block times of 400 milliseconds, this kind of arbitrage and price stability is unmatched on other networks with slower speeds and oracle delays.

Bots are designed to be competitive and greedy. They’ll be able to work with nearly perfect information and nearly zero friction on Solana, and that’s great news for maintaining USDH’s peg, Hubble's users, and DeFi on Solana.

Stability Pool

Users who deposit USDH into the stability pool receive liquidated assets proportionate to their share of the pool, and this highly incentivizes adding as much USDH to the pool as possible. This helps stabilize USDH's price, as this is the case with any token that is staked and accounted for by staking.

This pool also acts as another lever for controlling the price of USDH through the coordination of users acting in their own interests. When the price of USDH begins to rise, users who have deposited to the pool may make withdrawals of USDH and sell it on the market as described before. This then floods the market with more USDH and drives prices back to peg.

If this sounds a lot like game theory, it is, and Hubble leverages game theory to work in USDH’s favor. Hubble’s system is designed to best allow a focal point to be reached, and game theory stipulates that users will coordinate to keep USDH at a peg in order to “win” the most profits and reach the best possible outcome.

Hubble's Ecosystem Use Cases for USDH

USDH can be used in the same way as many other stablecoins on the market. It can be used as a store of value, traded on a DEX, or paired as liquidity in an AMM's liquidity pools. However, few other stablecoins on the market are put to use in the same way as USDH.

As mentioned before, Hubble users who deposit USDH into the stability pool are rewarded the collateral from liquidated positions that rise above the maximum 90.9% loan-to-value (LTV) for borrowing (110% collateral ratio). This makes USDH a valuable asset that unlocks the potential for any user to participate in receiving gains from liquidations.

Next, USDH’s other major Hubble use case is rewarding users who stake Hubble's governance token, HBB. Therefore, users who stake HBB receive rewards denominated in stable dollar values that reflect the activity of the protocol and how often and much Hubble’s users are minting USDH or redeeming USDH for SOL, BTC, and ETH.

This ensures that users can gain value from staking without damaging the value of HBB. If Hubble were to pay rewards in HBB, then this would create an opportunity for users to sell their newly rewarded HBB for a profit. This could then drive down the market price of Hubble’s native token, and it would reduce the incentive for holding.    

Other protocols have, in the past, tried implementing staking-for-fees fee-sharing systems that relied on a secondary token used solely for rewards. This protects the value of a protocol’s native token, but it also leads to the devaluation of the secondary token. In the end, user experience is diminished by receiving a token destined to lose value for cooperating with the system.  

Hubble wants to make sure users who support the community by staking HBB are fairly rewarded, so rewards are paid in USDH. In the world of DeFi rewards and fee-sharing schemes, this is a huge departure from the status quo where rewards are paid in governance tokens or other tokens minted to be given away.

Takeaways

The market cap for stablecoins has exploded within the last year and a half, and this phenomenon can be strongly linked to the rise of DeFi. A growing number of people are using stablecoins these days for many reasons.

Trading crypto tokens to capture value, paying for things through VISA, and participating in DeFi are just a few of the ways stablecoins have grown in popularity.    

As the popularity of stablecoins increases and their use becomes intertwined with the health of DeFi and other parts of the blockchain economy, participants should remember that not all stablecoins are created equal. Just because an asset has a stable price does not mean that one's due diligence can be thrown out the window.

Hubble invites users to take their own deep dive into our protocol and discover the benefits of the sustainable and democratic DeFi services we offer. Hubble’s services and the tokenomics of HBB and USDH have been carefully planned to create value for Hubble’s users as we together explore the vast realm of possibilities for DeFi on Solana, the world’s fastest blockchain.  

Please note that this article is not financial advice.

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