Comprehensive analysis of the 7 major stablecoins: How big is their risk of depegging?

Original article: "Comprehensive Analysis of the Risks of Depegging of 7 Major Stablecoins"
Author: Bteye core contributor 0xhankerster.eth
Editor: Crush, core contributor of Biteye
The depegging of the "stable" coin UST in the first half of the year directly brought the crypto market into a bear market, and its domino effect also brought down a series of star projects. So, are other stablecoins stable? If there is another depegging, the crypto circle will be bloody!
This article comprehensively analyzes the depegging risks of the seven most popular stablecoins and lists usage guidelines to help everyone better protect their assets.
01. Introduction to Stablecoins
Stablecoins usually refer to cryptocurrencies whose prices are anchored to legal currencies such as the U.S. dollar or other assets with stable values. Common anchored assets include the U.S. dollar (USDT, DAI, etc.), the euro (EURT, etc.), gold (PAXG, etc.), and other assets.
Currently, the most common anchored asset is the US dollar, so the following article will focus on the US dollar stablecoin, and all stablecoins mentioned without further explanation refer to the US dollar stablecoin.
Why do we need stablecoins?
Value scale: People are used to measuring the price of goods or assets, including crypto assets, in fiat currency. Although many NFTs issued on Ethereum are priced in ETH, buyers still estimate the fiat value of NFTs in combination with the price of stablecoins. Measuring the value of crypto assets in US dollars is usually called "U-standard", and measuring the value of crypto assets in other cryptocurrencies is usually called "currency standard".
Means of storage: Stable assets such as the US dollar are backed by strong government credit and have broad purchasing power in reality. They will not "return to zero" like crypto assets. Therefore, when Web3 users want to keep on-chain assets as stable as possible, they can choose to convert risky assets in their accounts into stablecoins anchored to stable assets to preserve value.
Means of circulation: In the crypto world, people need to hold stablecoin assets to store value and measure asset value through legal tender units, so legal tender stablecoins have become the main means of circulation in the crypto world. Stablecoins issued based on blockchain allow users to directly purchase goods, services or assets based on blockchain, enjoy the good characteristics of blockchain ledgers, and do not need to frequently convert legal tender into stablecoins and then transfer them to the on-chain wallet for purchase.
Classification of Stablecoins
The most important property of a stablecoin is that its price is anchored to the U.S. dollar. There are many mechanisms to achieve the anchoring of the price to the U.S. dollar. Different mechanisms also bring corresponding risks. Usually, we can roughly classify stablecoins according to the "issuer" and "anchoring mechanism".
According to the issuer, it can be divided into two categories: "centralized" and "decentralized":
Centralized stablecoins are usually issued by an entity off-chain. Decentralized stablecoins are usually generated by a decentralized stablecoin protocol on the chain.
According to the anchoring mechanism, it can be divided into two categories: "collateralized stablecoins" and "algorithmic stablecoins":
Collateralized stablecoins are usually collateralized by sufficient or excess assets. Algorithmic stablecoins maintain their price peg to the U.S. dollar through certain algorithms combined with arbitrage mechanisms. Typical risks of stablecoins
The core nature of stablecoins is their anchoring to the US dollar price. Based on the anchoring to the US dollar price, stablecoins can play the role of value scale, storage means, circulation means, etc. in the crypto world, becoming an asset type that users cannot avoid.
Therefore, the biggest risk of stablecoins lies in the decoupling from the US dollar price, and the decoupling risk usually comes from different stablecoin issuers.
Risks from the original issuer
① Collateralized stablecoins: insufficient collateral reserves
Whether the collateral stablecoin is issued by a centralized or decentralized organization, its price anchoring to the U.S. dollar depends on whether the issuer has sufficient assets to support the stablecoin, ensuring that users can exchange it at a 1:1 price at any time. Decentralized collateral stablecoins are usually minted and issued by smart contracts on the chain. The value of the collateral assets is transparent and visible, and the risks mainly come from the smart contract level. The issuer of centralized collateral stablecoins stores the reserve assets in the account, which is not as transparent as decentralized collateral stablecoins and has the risk of being misappropriated. Therefore, centralized stablecoin issuers usually need to disclose the collateral to gain user trust.
② Algorithmic stablecoins: risks such as unlimited issuance due to algorithmic loopholes and decoupling due to shaken confidence
Risks from derivative issuers
It is difficult for the original issuer of stablecoins to issue native stablecoins on all chains. Therefore, when users need to use a stablecoin on an unofficial chain, they can only cross-chain the required stablecoin to the target chain through a cross-chain bridge or a centralized exchange.
The corresponding stablecoin on the target chain is usually issued by the corresponding cross-chain bridge, centralized exchange and other derivative issuers, and its security also depends on the corresponding derivative issuer, so the following two corresponding risks will arise.
Cross-chain bridge risk: When a user uses a cross-chain bridge to cross chains, the cross-chain bridge usually locks the user's stablecoin on the original chain and sends the corresponding stablecoin to the user on the target chain. When the corresponding stablecoin of the target chain is issued by the cross-chain bridge, if the cross-chain bridge is attacked, the user's stablecoin on the target chain will lose the supporting property, resulting in the risk of de-anchoring. Centralized exchange risk: When a user uses a centralized exchange to deposit and withdraw cross chains, the exchange will accept the user's stablecoin off-chain and send the corresponding stablecoin to the user on the target chain. When the corresponding stablecoin of the target chain is issued by a centralized exchange, the exchange has an overdrive, resulting in insufficient collateral and the risk of de-anchoring.
 
02. Analysis and comparison of seven major stablecoins
Stablecoins have different types, mechanisms and market positions. Users should consider the advantages and disadvantages of stablecoins before exchanging and using them. The following is a comprehensive comparison of the top seven stablecoins by market value for user reference. (The following stablecoins are sorted by market value)
USDT (centralized collateral stablecoin)
Introduction
Tether USD, referred to as USDT, is issued by Tether and is currently the stablecoin with the highest market value, with a total market value of approximately US$65.7 billion.
Public chain distribution
USDT is circulated on 61 public chains including Tron, Ethereum, BSC, Solana, etc., and has the largest market value share on Tron and Ethereum, which are 51.22% and 38.34% respectively. USDT issued by the original issuer Tether is on 14 public chains including Tron, Ethereum, Solana, Omni, Avalanche, Tezos, Algorand, EOS, Liquid, Statemint, SLP, Near, Statemine, Polygon, etc. USDT on the remaining public chains are all issued by derivative issuers.
Anchoring Mechanism
The issuer reserves sufficient funds so that users can use USDT to exchange USD at a 1:1 ratio at any time.
Potential risk analysis
① Risk of insufficient collateral from the original issuer
The assets backing USDT in Tether’s reserves are not completely transparent, and there is a risk of misappropriation by the company as well as corresponding investment risks.
USDT holders can use Chaineye to view Tether’s assets and liabilities as well as the distribution of its reserves to determine its potential risks.
https://chaineye.tools/stablecoins/stats/USDT
At present, Tether's reserve assets for USDT are worth about 68.06 billion US dollars, exceeding the issuance volume of 65.7 billion US dollars. About 90% of its reserve assets are cash and cash equivalents with good liquidity, and 9.02% (about 6.14 billion US dollars) are used for investments including cryptocurrencies, which have certain risk factors. Tether has been publishing audit reports from time to time since 2017. The latest audit report was released on September 30, 2022. The audit company is BDO, the world's fifth largest accounting firm, headquartered in Brussels. Tether uses BDO in Italy. Tether's previous audit came from an audit company in the Cayman Islands called MHA Cayman, formerly known as Moore Cayman. Its parent company is MHA MacIntyre Hudson, a leading registered accounting firm in the UK. It was investigated by the UK Financial Regulatory Authority for audit issues in January 2022.
② Derivative issuer risk
Cross-chain bridge: The security of USDT transferred through the cross-chain bridge is affected by the security of the cross-chain bridge. Specific information about the cross-chain bridge can be queried on DefiLlama
https://defillama.com/stablecoin/tether
Centralized exchange: depends on the specific exchange and the specific currency it issues on the target chain. You can check the asset reserve status on the corresponding official website. USDC (centralized collateral stablecoin)
Introduction
Issued by Circle, a blockchain payment company jointly formed by Coinbase and other companies, it is currently the second largest stablecoin by market value, with a total market value of approximately US$42.36 billion.
Public chain distribution
USDC is circulated on 59 public chains including Ethereum, Solana, Avalanche, Tron, etc., and its share on Ethereum reaches 83.7%. USDT issued by the original issuer Circle is on 14 public chains including Ethereum, Algorand, Avalanche, Flow, Hedera, Solana, Stellar, TRON, Arbitrum, COSMOS, NEAR, and Optimism.
Anchoring mechanism: The issuer reserves sufficient funds so that users can use USDT to exchange with USD at a 1:1 ratio at any time.
Audit and Compliance: USDC Reserve
Potential risk analysis
① Risk of insufficient collateral from the original issuer
USDC holders can use Chaineye to view Circle’s assets and liabilities as well as the distribution of its reserves to determine its potential risks.
https://chaineye.tools/stablecoins/stats/USDC
Circle updates its reserve and issuance information weekly. On December 10, 2022, Circle's reserve assets for USDC were worth approximately US$43.7 billion, exceeding the issuance volume of US$42.36 billion at the time. Its reserve funds only include cash and short-term US Treasury bills, accounting for 22.12% and 77.88% respectively, with low risk. Circle has published audit reports every month since October 2018, and its audit reports are provided by Grant Thorton, the sixth largest accounting firm in the United States. Circle's reserves are all kept by major US financial institutions, including BlackRock Bank and Bank of New York Mellon. At the same time, Circle announced on August 9, 2021 that it would become a national digital currency bank and operate under the supervision and risk management requirements of the Federal Reserve, the US Treasury, the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC). Circle's stablecoin reserve assets are stored in a series of FDIC-supported banks such as New York Mellon. Each account has an insurance limit of up to US$250,000, which can reduce the risk of bank runs to a certain extent.
② Derivative issuer risk
Cross-chain bridge: Specific information about the cross-chain bridge can be queried on DefiLlama.
https://defillama.com/stablecoin/usd-coin
Other derivative issuers: Analyze specific issues specifically.
BUSD (centralized collateral stablecoin)
Introduction
BUSD is a stablecoin issued by Binance in cooperation with Paxos (Paxos is also the issuer of the stablecoin USDP), approved and regulated by the New York State Department of Financial Services (NYDFS). BUSD is currently the third largest stablecoin by market value, with a total market value of approximately US$22.07 billion.
Public chain distribution
BUSD is circulated on 33 public chains including Ethereum and BNB, and its share on Ethereum reaches 77.96%.
Native BUSD is only issued on Ethereum. In order to expand the liquidity of BUSD to other chains, Binance fully pledged some native BUSD on Ethereum and issued Binance-Peg BUSD on BNB, BSC, Avalanche and Polygon. BUSD on other chains are all issued by other derivative issuers.
Anchoring Mechanism
The issuer reserves sufficient funds so that users can use USDT to exchange USD at a 1:1 ratio at any time.
Potential risk analysis
① Risks of the original issuer
BUSD holders can use Chaineye to view BUSD’s assets and liabilities as well as the distribution of its reserves to determine its potential risks.
https://chaineye.tools/stablecoins/stats/BUSD
Paxos publishes a reserve asset report at the end of each month. There is a time difference between the last published collateral data and the latest circulation. Currently, the total circulation of BUSD is 22.07 billion US dollars (December 10, 2022), and the corresponding report has not yet been released.
The latest report was released on November 30, 2022, with a net reserve asset market value of $22.65 billion, exceeding the $22.38 billion in circulation that day. Its reserve funds include cash, U.S. Treasury bills and U.S. Treasury bond-collateralized reverse repurchase agreements, which are relatively low risk.
The latest reserve fund status each month can be checked on Paxos (Note: the latest report released by Paxos has not been audited by a third-party auditing company. The report audited by a third party will lag behind the release time of Paxos by about one month. The data in Chaineye is the latest report audited by a third party).
https://paxos.com/busd-transparency/
BUSD reserves are held by banks such as BMO Harris Bank. Paxos’ audit report is provided by a third-party auditing firm, WithumSmith+Brown, which is ranked among the top 25 accounting firms in the world.
② Derivative issuer risk
Cross-chain bridge: Detailed information about the cross-chain bridge can be found on DefiLlama
https://defillama.com/stablecoin/binance-usd
Centralized exchanges: Binance has fully pledged some of the native BUSD on Ethereum and issued Binance-Peg BUSD on BNB, BSC, Avalanche, and Polygon. You can use Chaineye to check the reserves that Binance has made for the Binance-Peg BUSD on the corresponding chains. The BUSD locked by Binance has a 100% pledge rate, which is relatively low risk.
https://chaineye.tools/stablecoins/stats/pegBUSD
Other derivative issuers: specific issues and specific analysis
DAI (decentralized collateral stablecoin)
Introduction
DAI is a stablecoin minted by the decentralized lending protocol Maker DAO. Its current market value ranks fourth among all stablecoins, with a total market value of approximately US$5.42 billion.
Public chain distribution
DAI is circulated on 40 public chains including Ethereum, Polygon, BSC, etc., and its share on Ethereum reaches 88.33%.
MakerDAO is only deployed on Ethereum, so the native DAI is on Ethereum. The DAI on other chains is issued by other derivative issuers.
Issuance Mechanism
DAI is minted by users through the Maker protocol by over-collateralizing assets. The amount of DAI that can be minted cannot exceed a certain ratio of the value of the collateralized assets, which is equivalent to loaning cash against assets such as mortgaged real estate in traditional financial services. Users can redeem collateralized assets with DAI at any time and destroy DAI. A stability fee is required for redemption. When the value of the user's collateralized assets falls, resulting in a decrease in the collateralization rate, liquidation will be triggered. The user's collateral will be forced to sell at a premium and a 13% fine will be required. After the collateral is liquidated, the user no longer needs to repay DAI. The Maker protocol supports more than 20 types of collateral, including ETH and WBTC. The collateralization rate and stability fee of each asset are determined by the risk index of the asset itself and the governance of MKR holders (DAI supports collateralized assets, source: MakerDAO official website)
Stabilization Mechanism
When the price of DAI is lower than $1: the amount of DAI minted is determined based on the USD assets of the collateral, and when DAI is used to redeem the collateral from the Maker protocol, the value of DAI is considered to be $1 by the protocol, so users can choose to redeem the collateral with a certain amount of DAI and destroy DAI to reduce the supply of DAI. When the price of DAI is higher than $1: users are motivated to continue minting more DAI and sell them for profit; at the same time, MakerDAO provides a DAI deposit mechanism, and the community will increase DAI deposits to encourage holders to lock up DAI and reduce circulation. The interest on DAI is paid by the MakerDAO stability fee income. If the stability fee income cannot cover the total expenditure of the DAI deposit rate, Maker will issue additional MKR to make up the difference. Proposal to allow DAI to decouple from the US dollar: On August 28, 2022, MakerDAO co-founder Rune Christensen published an article titled "The Road to Compliance and the Road to Decentralization: Why Maker has no choice but to prepare for free floating DAI", pointing out that more than 50% of DAI is currently collateralized by USDC, and regulatory crackdowns on cryptocurrencies may occur without prior notice, with no possibility of recovery even for legitimate, innocent users.
Therefore, Rune Christensen suggested gradually increasing the decentralized asset collateral share of DAI and improving the degree of censorship resistance through a plan called "Endgame Plan". Rune pointed out that this process may cause 50% of users to leave, but Maker will give priority to decentralization and allow DAI to be decoupled from the US dollar to maintain decentralization.
① Main contents of "Endgame Project"
a. Split the complex MakerDAO governance into multiple MetaDAOs, each responsible for specific governance responsibilities, to improve the decentralization of governance: each MetaDAO can focus on its own tasks, achieve multi-center governance, allow MetaDAOs to execute in parallel, and speed up the governance process.
MetaDAOs are independent of each other, have their own governance tokens and governance processes, and need to earn their own profits.
b. Introducing more decentralized assets: reducing the stability fees of collateral assets such as ETH and wBTC, and reducing the need to mint DAI through USDC;
The introduction of ETHD allows users to mint ETHD through stETH and then mint DAI, thereby increasing the share of ETH in collateral assets and thus increasing the proportion of decentralized assets.
c. Three progressive collateral strategies to gradually achieve decentralization: The three strategies are Dove, Hawk, and Phoenix, which develop gradually over time and are gradually advanced according to regulatory threats.
Dove strategy: Increase collateral assets as much as possible to maintain high asset growth; Hawk strategy: If DAI is attacked by authority, the risk exposure to real assets (RWA) that can be controlled by authority will be limited to 25% to seek a balance between performance growth and flexibility;
Phoenix Strategy: If there is evidence of an imminent authority attack or all collateral of the RWA has been seized, there will be a transition to a Phoenix strategy that eliminates all RWA risk exposure, and only RWAs that cannot be controlled by the authority can be used as collateral.
d. Will allow DAI to decouple from the USD in the event of an authority attack: Rune assumes that in the initial stages of activating DAI free float, up to 50% of protocol users will leave in a short period of time.
During this phase, Maker allows DAI to float freely from the US dollar at a 1:1 ratio and gradually change its price according to the target interest rate. A positive target interest rate increases the demand for DAI and reduces the supply of DAI, while a negative target interest rate has the opposite effect.
By adjusting the interest rate, DAI can be relatively stable without being pegged to the US dollar at a 1:1 ratio. Rune also said that DAI will remain pegged to the US dollar for at least 3 years, and this period will be extended if there is no direct threat.
If the decentralization of collateral can be increased to 75%, the peg to the US dollar will be maintained indefinitely.
② Progress of the "Endgame Project"
The "Endgame Plan" proposal was initiated on October 10, 2022 and has now passed the community vote. The roadmap of the Endgame Plan is divided into 4 major phases.
The early version will be launched within 12 months, building ETHD, launching 6 MetaDAOs, launching liquidity mining of MetaDAO's own token system, etc. However, the full version will not be launched until 2030 or later.
Potential risk analysis
① Risks of the original issuer
There is a loophole in the MakerDAO protocol, which was exploited by attackers to maliciously issue additional tokens. MakerDAO has been running stably for 5 years since the mainnet was launched in 2017, and the code has been well verified. At the same time, MakerDAO has restricted the types of collateral assets it supports, mostly tokens with good qualifications. Liquidation risk: When the market encounters an extreme black swan event, causing the overall price of the collateral assets to fall rapidly, or when the compliant assets such as USDC are frozen for some reason, Maker will lose the value of the collateral that cannot be liquidated in time, resulting in the risk of de-anchoring.
② Derivative issuer risk
Cross-chain bridge: Specific information about the cross-chain bridge can be found on DefiLlama Other derivative issuers: Specific issues need specific analysis
https://defillama.com/stablecoin/dai
FRAX (decentralized algorithmic & collateralized hybrid stablecoin)
Introduction
Frax is a decentralized stablecoin protocol that uses a hybrid of collateral and algorithms. FRAX is the stablecoin it issues. FRAX currently has a market value of approximately $1.18 billion, making it the fifth largest stablecoin by market value.
Public chain distribution
FRAX is circulated on 33 public chains including Ethereum and Arbitrum, with a share of 92.89% on Ethereum. The native FRAX issued by Frax is only circulated on Ethereum, and Frax on other chains is issued cross-chain by derivative issuers.
Issuance and redemption mechanism
When a user injects $1 of collateral into the Frax system, Frax will mint 1 FRAX for the user, and the injected collateral is a combination of stablecoins and FXS; at the same time, the user can also return 1 FRAX to the protocol and obtain a combination of FXS and U worth $1. In the process of minting and redeeming FRAX, the FXS involved will be destroyed and minted, changing the supply of FXS in the market. During the minting and redemption process, the mixing ratio of stablecoins and FXS (Frax's governance token) is equal to the target collateral ratio of the Frax protocol (FRAX quantity/stablecoin collateral quantity). For example, when the collateral ratio is 80%, a user needs 0.8U and 0.2U worth of FXS to mint one FRAX. The target collateral ratio is adjusted every hour by the community holding FXS.
Anchoring Mechanism
When the price of FRAX is higher than 1 USD, arbitrageurs can inject 1 USD of value into the system to mint FRAX and sell it in the market for a profit. When the price of FRAX is lower than 1 USD, arbitrageurs can buy FRAX at a low price in the open market and exchange it for 1 USD of value in the system. When the market conditions are good and users have sufficient confidence in Frax, Frax tends to lower the target collateral ratio, so that the same stablecoin collateral can mint more FRAX to enter the market circulation, with a minimum collateral ratio of 0%. When the market conditions are poor and users' confidence in Frax decreases, Frax tends to increase the target collateral ratio to prevent excessive issuance of FRAX and increase the reserves of stablecoin collateral. The maximum collateral ratio is 100%. The current collateral ratio of FRAX is 93.25%, the historical minimum collateral ratio is 82%, and the maximum collateral ratio is 100%.
Potential risk analysis
① Risks of the original issuer
There is a vulnerability in the Frax protocol, which was exploited by attackers to maliciously issue additional tokens. Frax was launched at the end of 2020, and there is no protocol vulnerability issue so far.
② Mechanism risk
When the price of FRAX falls, it relies on arbitrageurs to buy FRAX and deposit it in Frax, mint FXS with the target collateral ratio, and withdraw some U to push the price of FRAX back to $1. If FXS is issued excessively, it will hit market confidence and make the Frax community lose control. Frax uses a mixed collateral of U+FXS and a stabilization mechanism that can adjust the target collateral ratio. It can narrow the arbitrage space under extreme unilateral market conditions and maintain the stability of FRAX prices to a certain extent. When FRAX is lower than $1, arbitrageurs will buy a large amount of low-priced FRAX, mint a combination of U and FXS worth $1, and sell them for profit. The selling pressure of U will not cause the price of U to fall, but the selling pressure of FXS will cause the price of FXS to fall, triggering a chain reaction. Excessive minting of FXS will cause the protocol governed by FXS to lose control and make the price of FXS "return to zero". The existence of U reduces the selling pressure caused by excessive minting of FXS, and supports the bottom price of FRAX: when the collateral ratio is x, arbitrageurs need x proportion of U and (1-x) proportion of FXS. The larger the collateral ratio x, the smaller the proportion of FXS to (1-x), and the smaller the FXS selling pressure, thereby slowing down the chain reaction. At the same time, x proportion of U as the supporting asset of FRAX forms the bottom price of FRAX, so that FRAX always has the recognized value of xU and will not directly "return to zero". The minting and redemption of FRAX are not always open, which increases the cost of malicious attacks on Frax: only when FRAX is sold in large quantities and depegged, arbitrageurs have the motivation to issue more FXS.
When the market price of FRAX is in a stable range ($1.0033 ≥ FRAX ≥ $0.9933), the FRAX protocol will not allow the minting and redemption of FRAX. Therefore, Frax's malicious attackers need to sell a large amount of FRAX before they can drive the price down to below 0.9933 to launch an arbitrage attack. Therefore, the design of the arbitrage range greatly increases the cost of the attack.
At the same time, a slight depegging will not immediately trigger a large amount of FXS issuance, which provides Frax with a window of self-rescue, allowing it enough time to adjust the collateral ratio or replenish collateral assets. In summary, the FRAX-FXS mechanism is more stable than the UST-LUNA combination.
② Derivative issuer risk
Cross-chain bridge: Specific information about the cross-chain bridge can be found on DefiLlama Other derivative issuers: Specific issues need specific analysis
https://defillama.com/stablecoin/frax
USDP (centralized collateral stablecoin)
Introduction
USDP is a collateralized stablecoin issued by Paxos and approved and regulated by the New York State Department of Financial Services (NYDFS). Its current market value is approximately US$768 million, making it the sixth largest stablecoin by market value.
Public chain distribution
USDP is currently only circulated on Ethereum and BSC, with Ethereum accounting for 99.68% and the rest being transferred across the chain to BSC via the BSC Bridge.
Anchoring Mechanism
The issuer reserves sufficient funds so that users can use USDT to exchange USD at a 1:1 ratio at any time.
Potential risk analysis
① Risks of the original issuer
USDP holders can use Chaineye to view BUSD’s assets and liabilities as well as the distribution of its reserves to determine its potential risks.
https://chaineye.tools/stablecoins/stats/BUSD
Paxos publishes a reserve asset report at the end of each month. There is a time difference between the last published collateral data and the latest circulation. Currently, the total circulation of BUSD is 770 million US dollars (2022.12.11), and the corresponding report has not yet been released.
The latest report was released on November 30, 2022, with the market value of net reserve assets at US$774.9 million, which is less than the USDP circulation of US$790 million on that day. However, its circulation volume on December 1 dropped to US$767 million, which may indicate a timing issue.
USDP reserve assets are U.S. Treasury bonds and cash, which are less risky. The latest reserve fund status can be found on the Paxos official website. (Note: The latest report released by Paxos has not been audited by a third-party auditing company. The report audited by a third party will lag behind the release time of Paxos by about one month. The data in Chaineye is the latest report audited by a third party)
https://paxos.com/busd-transparency/
Similar to BUSD, USDP’s reserves are held by Paxos and are fully regulated by the New York State Department of Financial Services (NYDFS). Audit reports are provided by third-party auditing firm WithumSmith+Brown.
② Derivative issuer risk: BSC Bridge risk
TUSD (centralized collateral stablecoin)
Introduction
TUSD is a collateralized stablecoin issued by TrustToken, a company backed by the Stanford Venture Fund. TUSD currently has a market value of approximately US$756 million, making it the seventh largest stablecoin by market value.
Public chain distribution
TUSD circulates on 10 public chains including Tron, Ethereum, and BSC, with a share of 49.8% on Tron and 33.57% on Ethereum respectively. The native TUSD issued by TrustToken is distributed on four chains: Ethereum, BSC, Tron, and Avalanche. The TUSD on the remaining chains is transferred across chains by the derivative issuer.
Anchoring Mechanism
The issuer reserves sufficient funds so that users can use USDT to exchange USD at a 1:1 ratio at any time.
Potential risk analysis
① Risks of the original issuer
Users can check the reserve status of TUSD through Chaineye. Currently, the reserve assets of TUSD are worth 810 million US dollars, with a circulation of more than 756 million US dollars, and are stored in multiple bank accounts, but the specific asset allocation in the bank cannot be seen. TrustToken's audit report is issued by a third-party accounting firm Cohen & Company, which is an accounting firm focusing on digital asset solutions. At the same time, TrustToken cooperated with Armanino, a top accounting firm in the United States, to develop reserve data reading software. Armanino's web browser has been reading the escrow balance and the total circulating supply on the TUSD chain, and displaying both in real time to prove the TrueUSD balance in real time.
https://real-time-attest.trustexplorer.io/truecurrencies
Derivative Issuer Risk
Cross-chain bridge: You can check the specific information about the cross-chain bridge on DefiLlama: https://defillama.com/stablecoin/trueusd Other derivative issuers: Specific issues will be analyzed specifically
Replenish
Silvergate appears among the custodial banks for both BUSD and TUSD. Silvergate is a bank headquartered in the United States that mainly serves cryptocurrency companies. Its clients include well-known cryptocurrency companies such as FTX, Coinbase, Circle, and Paxos.
FTX has about $1 billion in deposits in Silvergate. On the day FTX filed for bankruptcy, Silvergate issued a statement saying that its bank did not have any risk in FTX, and FTX's deposits in Silvergate accounted for less than 10% of the bank's total deposits, which would be returned to FTX's creditors through FTX's bankruptcy procedure.
At the same time, Silvergate supports FDIC (Federal Deposit Insurance Corporation) insurance. Each Silvergate account has a maximum insurance limit of US$250,000, which can reduce the risk of bank runs to a certain extent. Overall, the possibility of Silvergate going bankrupt due to bank runs is relatively small.
03. Summary
The use of stablecoins needs to consider two indicators: security and ease of use
Security: Can it guarantee 1:1 redemption with USD under any circumstances?
Centralized stablecoins need to focus on the credibility of the original issuer, the collateral ratio and risk of the reserve assets, and the credibility of third-party regulators and auditing agencies to ensure that the issuer has sufficient funds in reserve to deal with bank runs. Decentralized stablecoins need to examine their minting and destruction mechanisms, whether there is an unlimited issuance mechanism and triggering conditions.
Ease of use: Focus on the circulation volume and the scenarios in which the currency is accepted for payment. Try to choose a stable currency with a large circulation volume and wide acceptance.
References
[1] “What can we observe from the USDT five-year audit report?”
htps://www.theblockbeats.info/news/31738
[2] Coinshares Research: Does Tether Bring Systemic Risk to the Cryptocurrency Market?
https://mytokencap.com/news/390380.html
[3] “MakerDAO’s Determination to Decentralize: DAI Depegs from USD and Eventually Becomes the World Currency”
https://www.defidaonews.com/article/6774636
[4] From Currency Protocol to DeFi Matrix, a Multi-angle Analysis of Frax.finance
https://mirror.xyz/mintventures.eth/555rObptbsTSEYHMRBEDI9_mEBmrR1FHLWJ1vWGGosw
[5] “MakerDAO’s Dilemma and Choices: Losses, Regulation, and MetaDAO”
https://www.chaincatcher.com/article/2079679