While cryptocurrencies and other blockchain innovations such as NFT have been gaining traction, stablecoins continue to receive a degree of attention. However, while they may not offer the most exciting options in recent years, things are about to change.

As the economy stabilizes and inflation picks up, the first driver of these significant changes will be a change in monetary policy by the Federal Reserve. The second is the emergence of new stablecoin-based financial products in the AQRU, enabling investors to hold dollar-equivalent assets that will generate higher returns than any other dollar-denominated instruments.

Here's what stablecoins are, and why you should be interested in them in 2022.

In case you missed it, this is the stablecoin

In short, a stablecoin is a token whose value is pegged to another asset. This could include anything from fiat currencies to precious metals, although the most popular is the USD₮ Tether token, which, as the name suggests, is pegged to the US dollar.

In general, the mechanics of any given stablecoin are very similar to any other backing currency. For example, just as federal banks used to keep reserves of gold to back their currencies, stablecoin issuers keep reserves of the underlying assets.

In the case of Tether's USD₮, the reserves are said to be matched one-to-one with the issued tokens, which ensures that the cryptocurrency is 100% backed and ready for redemption.

There are other options, and USD coins (USDC) are another popular choice. After that, there are other options, such as Coin USD and Terra USD.

Why would anyone want a stablecoin over a regular dollar?

There are as many reasons to hold stablecoins as there are stablecoins. However, by far the main reason people hold stablecoins is that they offer a low-cost option for trading and trading cryptocurrencies. This is particularly attractive to anyone actively trading between unpegged cryptocurrencies and traditional currencies.

As an example of why this is so attractive, the fee to withdraw Ether from a Coin account is currently 0.00625 ETH, which at the time of writing equates to about $17-18. This means that for anyone removing an ethereum position worth less than $18,000, it is more economical to convert it to stablecoin cryptocurrency than to withdraw regular cash.

Another major advantage offered by stablecoins is speed. In most cases, converting cryptocurrencies to regular cash requires an interbank transfer, which means that funds are tied up in ethereum for a long time. This is particularly onerous for active traders and is easily solved by trading between stablecoins and other cryptocurrencies.

So what makes stablecoins so attractive to the rest of us in 2022?

Over the past few years, the U.S. dollar has not been the most attractive currency to hold. With interest rates at historic lows and the Federal Reserve recklessly printing dollars to stimulate economic activity, the harmful combination of inflationary pressures and low interest rates has become a salient warning to stay away unless absolutely necessary.

However, things are starting to change. Inflation is actually rising, prompting the Federal Reserve to start tightening stimulus. This means that as interest rates rise, we should see an end to the rampant money printing.

All in all, this has increased demand for the U.S. dollar, which has begun to rally against other currencies in recent months. In addition, analysts predict that these gains will continue throughout the year, meaning that holding the dollar is more attractive now than it has been in the long run.

At this point, it is worth noting that a rise does not mean that reasonable rates are imminent. Keep in mind that rates, currently at 0.25%, will take a while to even match inflation, and even longer to start looking attractive.

However, we do not recommend that you hold dollars outright, even if they start to look more attractive.

This is why you should hold stablecoins

There are good reasons why we chose stablecoins. Yes, part of the reason is the increasing attractiveness of the U.S. dollar. However, the more important reason is the higher yields available through products such as AQRU's Stablecoin Yield Account, which currently offer yields of up to 12%.

Such high interest rates depend heavily on how much demand there is for stablecoins at the moment. As the cryptocurrency market remains as hot as ever, active traders simply can't get enough stablecoin right now, especially if they are involved in the world of instant arbitrage. This means they are prepared to pay a huge premium for instant but temporary access to stablecoin to execute large trades.

Why you should hold your stablecoin with AQRU

Of course, this type of lending practice started long before AQRUs entered the market, so this is not the only option available here. However, while other options exist, they typically require you to deal directly with the underlying instrument, which has the dual consequence of increasing complexity and risk.

In terms of risk, the advantages of AQRU are twofold. First, by managing deposits for many clients, AQRU can readily decentralize the risk of multiple contracts. This is difficult for the average investor to achieve, both in terms of the amount of work required and in terms of the usual lack of necessary capital. The second advantage of its lower risk is AQRU's ability to insure client funds at an economical rate, thus guaranteeing all deposits.

In terms of complexity, the appeal of AQRU cannot be underestimated. The entire product functions in the same way as an online bank account, which means that once customers have completed the mandatory KYC, all they have to deal with is making deposits and withdrawals from their account.

When you consider AQRU's 12% stablecoin yield, the whole package is hard to ignore. With essentially the same security as a regular dollar bank deposit, but with a higher return, the only reason not to consider it is because the Federal Reserve lowered interest rates and started printing money again. Although in this case, AQRU offers similar products for bitcoin and ethereum.