Stablecoins on a Dip? Your PRV Screams, “Keep Hodling On!”

Let’s do a quick review.

Stablecoins are a type of cryptocurrency that peg its value to that of a more stable asset. Unlike other cryptocurrencies, most stablecoins have central authorities managing them. The central authority typically purchases the asset tied to the stablecoin and puts it in a reserve. This gives the stablecoin a value of “stability”, to some extent.

Are stable coins really stable?

Records show that the market capitalization (circulating supply) of the four leading US dollar stablecoins alone now exceeds $100 billion! These four are:

  • USDt (Tether)
  • USDC (USD Coin)
  • Facebook Diem (DIEM)
  • Dai (DAI)

However, when we take a closer look, stablecoins are not truly fully stable. Their value is pegged and dependent on the asset to which they are tied, or “collateralized”. What does this mean? Logically, stablecoins can still increase or decrease in value based on what happens to that asset they are tied to! The main question to be taken into account is: how drastic do the values of these assets change?

Inflation, the nemesis of fiat-based stablecoins

For example, If you buy a stablecoin pegged to the US dollar, you’re banking on the value of the US dollar. Just this week, European and US stocks treaded water following data showing accelerating inflation. If we didn’t know better, Inflation might also have been the reason why you jumped from fiat into crypto. Imagine facing it again.

Producer price index data showed an increase of 7.3% for the 12 months ended in June, its largest-ever yearly jump since the Labor Department began tracking it more than a decade ago! And this phenomenon has been observed for the past couple of weeks, projected to last until this pandemic comes to a conclusion.

Verily, stablecoins, although would most likely never crash, still certainly would dip. So what do you do with your PRV when this happens?

The best strategy is to HOLD

Hodling your PRV tokens would be the most tactical step when stablecoins are on a dip. PRV tokens, unlike stablecoins, are not backed by fungible assets. This does not mean that it is resistant to value flux, it just means that as a defi token, it is more flexible.

Let’s take DAI and USDC as an illustration. DAI is a decentralized stable coin running on the Ethereum blockchain, serving as one of the most staple buying power in the cryptoverse. USDC is the equivalent of the digital dollar; the crypto dollar. Whenever the US dollar value drops, so does these stablecoins’.

PrivacyVault is the way to go (or sleep)

If you are going to sell/swap your PRV at points of dip, you get the value-of-exchange at less premium. But if you just let it sleep in your Vault, you get rewarded for hodling your PRV longer! Optimizing compound rates can get intensive on gas (which really depends on the number of vaults and number of compounds in any given period). It only makes sense that you would want to compound larger sums for maximum gain while stablecoins are at a dip.

Snooze. Hibernate. And let the chaos pass.

This is totally strategic, as a stablecoin, just like the fiat it is tied on, may take weeks or even months to bounce back as it undergoes market correction.

Passive earning amidst active dips

When it comes to earning passive income with your crypto assets, staking and yield farming are the way to go. While we discuss the nitty gritty of yield farming in our previous articles, staking is something that must also be emphasized. Staking requires investors to hold their position for longer in order to earn interest, or yield, or “rewards”, or whatever other defi project calls it.

When stablecoins dip, you lose the opportunity to maximize your earnings should you choose not to hold. Keep in mind that, stablecoins offer a lower rate of APY (e.g., DAI: 2% and USDC: 0.15%) compared to the PRV. If you would sell PRV when stablecoins value is bearish, you lose the chance to maximize your profit.

Plus, staked PRVs are subjected to Yield Optimization, where you will no longer need to manually restake your returns or LP tokens in the vaults and pay the necessary gas fees. You likewise lose this passive-income generating experience in exchange for lower premium when you sell at stablecoin dips.

Wherefore, the best tactic when facing a stablecoin dip is: to keep calm and keep hodling on. Come to think of it, that principle applies to everything!

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