De-fi doesn't _technically_ need it but it's highly preferable.
Let's say you want to actively trade ETH against the USD. If you think ETH will go down the you want to sell it. Now if it's in a non-custodial wallet that you control, you would need to send it to an exchange, sell it, then hold USD on the exchange (were you have no control of it and they can seize it for fraud investigations, etc. - basically your money is held by a 3rd party).
Instead you can "sell" your ETH by trading it for a stablecoin pegged to the dollar. This way the only risk is the contract for the trade (which can be publically audited) and your money stays in your control.
Or if you wanted to accept cryptocurrency as payment but still only wanted the USD because of it's stability - you could accept that (this isn't very common as gas fees are rather high).
tl;dr - With exchanges a 3rd party has your money and a IOU. Coinbase has already said user crypto could be at risk in the case of bankrupcy. De-Fi removes this risk while still allowing you to trade against the USD.
disclaimer - Whether you want to do this might be a different question, just giving the reason for wanting a stablecoin.
edit: For those saying taxes - the US IRS still counts this as a sale and it's still taxed the same as an exchange trade - other countries might differ. Given the KYC/AML requirements and lack of general public knowledge about anonymity of crypto - I think sooner then later we'll see a crackdown.
ceejayoz|3 years ago
throwaway92394|3 years ago
Let's say you want to actively trade ETH against the USD. If you think ETH will go down the you want to sell it. Now if it's in a non-custodial wallet that you control, you would need to send it to an exchange, sell it, then hold USD on the exchange (were you have no control of it and they can seize it for fraud investigations, etc. - basically your money is held by a 3rd party).
Instead you can "sell" your ETH by trading it for a stablecoin pegged to the dollar. This way the only risk is the contract for the trade (which can be publically audited) and your money stays in your control.
Or if you wanted to accept cryptocurrency as payment but still only wanted the USD because of it's stability - you could accept that (this isn't very common as gas fees are rather high).
tl;dr - With exchanges a 3rd party has your money and a IOU. Coinbase has already said user crypto could be at risk in the case of bankrupcy. De-Fi removes this risk while still allowing you to trade against the USD.
disclaimer - Whether you want to do this might be a different question, just giving the reason for wanting a stablecoin.
edit: For those saying taxes - the US IRS still counts this as a sale and it's still taxed the same as an exchange trade - other countries might differ. Given the KYC/AML requirements and lack of general public knowledge about anonymity of crypto - I think sooner then later we'll see a crackdown.
HideousKojima|3 years ago