How are stablecoins used in DeFi?

Stablecoins are the glue of DeFi — they're the collateral and medium of exchange that lets everything else function without constant fiat-currency plumbing. Here's how they're actually used:

1. As collateral for borrowing. The biggest DeFi use case. You deposit ETH, USDC, or another asset, and borrow a stablecoin against it (e.g. on Aave or MakerDAO). Stablecoin loans give borrowers cash-like liquidity without selling their crypto, and the stable value means the loan doesn't fluctuate against itself.

2. As the quote asset in trading. Nearly every DEX pair trades against a stablecoin (USDC, USDT, DAI). Instead of ETH/USD pairs, you get ETH/USDC, which is how on-chain price discovery works. Stablecoins are also the unit of account for perp DEXs like Hyperliquid — your P&L, margins, and funding are all denominated in them.

3. As the base for yield / money markets. Lenders deposit stables into lending protocols (Aave, Compound) to earn interest from borrowers; holders put them into LPs or vaults for yield. The stable value is what makes these "safe-ish" yield products rather than volatile ones.

4. As liquidity in AMMs. Stablecoin pairs (e.g. USDC/USDT) and stablecoin-vs-other-asset pools provide the deep liquidity DEXs need to execute large swaps without much slippage.

5. For transfers and liquidity across chains. Bridges use stables as the transport medium to move value between Ethereum, BSC, Base, Solana, etc. Cheap, fast, stable — ideal for cross-chain relaying.

6. As the risk-free base for delta-neutral strategies. Farms, basis trades, and structured products peg to stables because they don't carry directional price risk the way ETH or BTC do.

The key caveat: stables are only as "stable" as their backing. Algorithmic or undercollateralized ones (like UST) have historically broken — the collapse of Terra's UST in 2022 is the textbook case of what happens when the peg relies on market incentives rather than genuine collateral. Fully collateralized ones (USDC, USDT, DAI) are far more resilient, though they still carry issuer and counterparty risk.

One useful way to see this in action: if you want to see where DeFi users are actually putting stables right now, I can pull the top lending or DEX protocols by current usage (fees and TVL) so you can see which venues dominate. Want me to?