Liquidity pools have emerged as a fundamental building block in the DeFi ecosystem. Individuals can now store their idle assets in decentralized liquidity pools that generate fees from autonomous token conversions performed by other users.

As liquidity pools and protocols have grown in popularity, one finding has remained consistent: Liquidity pools with the highest ROI and the largest number of liquidity providers often involve a stable asset in their reserves. This makes sense, as tracking the way pool assets shift in response to price movements is often a challenge — one that can lead to liquidity providers suffering impermanent loss on their pool holdings.

This inspired developers in the Bancor ecosystem to experiment with stablecoin-based liquidity pools:

USDB allows liquidity providers to create or contribute to pools on Bancor with one stable asset (or more) in the reserves. For example, a liquidity pool with two stable assets in its reserves (e.g., DAI:USDB or USDT:USDB) should exhibit very little divergence in asset prices, thereby maximizing the profitability of fees generated from conversions.

In addition, USDB-based pools are automatically interoperable with the Bancor Network, meaning USDB and BNT-based pools can instantly trade with one another.

As liquidity providers connect to Bancor through USDB-based pools, BNT will be bought and staked as collateral, in order to issue the USDB needed for such pools. In this way, USDB expands both the options available to liquidity providers as well as the utility of BNT.

Stablecoins stand to greatly advance open, pool-driven liquidity, and we are excited to see a wave of stable pools go live and get funded.