Stablecoin Index Portfolio Yield: The Perfect Solution to USD Devaluation?

The date was August 1971, typewriters clanked, and tongues wagged around the world of global finance as American President Richard Nixon announced the decision to suspend the convertibility of the US Dollar into gold. This effectively ended the century-long “International Gold Standard” and the “Bretton Woods Agreement” in one fell swoop. The implication of the move meant that the famed “gold window” would be slammed shut and foreign governments could no longer redeem their dollars for American gold reserves.

This landmark event marked a paradigm shift for the US investments and the Global economy at large. With the Dollar free from its golden leash, the US government was now free to enact unbridled expansionary monetary policies without recourse to the holders of the USD globally.

Asides from the disgruntled International Community, Investors and citizens who had their savings in USD and USD denominated bonds quickly began to feel the debilitating effects of inflation.

Following the deviation from gold-standard, the buying power of the USD has continued to decline annually. Since 1971, the USD has been effectively devalued by over 85%. Data from the Bureau of statistics shows that $1 in 1971 is now worth $7.01 in 2022 terms.

Between stimulus payments, tax increases, supply chain disruptions, tariffs and the Russia vs Ukraine war, the USD has been significantly devalued since the Covid 19 induced recession. Inflation rates climbed at rates similar to the 1930 recession. The annual inflation rate in the US accelerated to 7.5% in January of 2022, the highest since February of 1982. Analysts project that the figure may soar even higher amid soaring energy costs, labor shortages, supply disruptions, increasing gas prices due to the Russia vs Ukraine war.

In a bid to hedge the USD devaluation risk investors have traditionally turned to the S&P 500. But recently this has also proven to be grossly inefficient, especially for retail investors.

Downsides of S&P 500 and Traditional Finance based Indexes.

Having considered all of these, it re-emphasizes the question, “what is the perfect solution for USD devaluation exposure?” Well, over the past decade, blockchain technology has yielded effective solutions to many age-long challenges in the finance world. From increasing transaction speeds, lowering costs and democratizing access to financial services. In the same vein, Yield Bearing Stablecoin Indexes have emerged as one of the most reliable assets to hedge the USD devaluation risk.

What is a Yield Bearing Stablecoin Index and How does it Work?

In concise terms, a stablecoin is a cryptocurrency that has its price pegged, typically 1:1, to a fiat currency, or exchange-traded commodity. Primarily, stablecoins allow users to execute local and cross-border trade more efficiently, without having to go through the costly and slow banking system. But more importantly, the emergence of yield bearing platforms such as Alpaca finance and Venus have created unique opportunities for holders of their fiat-pegged native tokens to earn passive income through high-yield staking, lending and farming on various liquidity pools.

A Yield Bearing Stablecoin Index is an asset that is composed of the stablecoins pegged to the USD, and hosted on the yield-bearing protocol. A typical example is the Yield Bearing Stable Coin index (BGSC) executed by the Cook Finance team following a successful proposal vote put forward by the community.

Individual stablecoin protocols carry some inherent risks and they offer varying levels of yield performance across different trading periods. Consequently, it becomes imperative for an Indexes to be created to help index selectors diversify their portfolio. This is why Cook Finance has created an Index composed of 4 of the top 5 largest stablecoins, backed by highly-secure infrastructure and billions of dollars worth of locked reserves in their vaults.

Yield-bearing Stablecoin Indexes have emerged as a superior instrument to hedge against USD devaluation as it makes it possible for stablecoin holders to earn reliable yields at rates greater than the meager interests earned on savings accounts, fixed deposits or bonds.

Since all of these traditional options offer rates that are significantly less than prevailing inflation rates, it effectively makes stablecoin indexes an attractive option for retail and institutional investors in recent times.

Advantages of the Yield Bearing Stablecoin Index

How to Get Started on Cook Finance

For individuals and institutions looking to hedge their USD devaluation and inflation exposure, the Yield Bearing Stable Coin index (BGSC) on Cook Finance is a great place to start.

Components of Cook Finance’ Stablecoin Index Portfolio

Component tokens of Cook Finance’ Yield-Bearing Stablecoin Index have assets deposited in some of the most lucrative and reliable pools on each of the underlying protocols.,

Potential Benefits of the Cook Finance Yield Bearing Stablecoin Index:

The Yield-bearing stablecoin index will enable index selectors to access an Indexed instrument that could potentially outperform the inflation rate of the US economy.

The components in the Index consist of 4 of the top 5 largest stablecoins. They are backed by highly-secure infrastructure and billions of dollars worth of locked reserves in their vaults.

The index could provide a viable way for selectors to diversify their portfolio since these major stable coins are deposited into viable lending protocols such as Venus and Alpaca. Furthermore, Index selectors do not have to pay exorbitant charges and commissions as with hedge funds and brokers.

How to Get Started on Cook Finance

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