Author | Compiled by Chris Powers | Produced by Huohuo | Vernacular Blockchain (ID: hellobtc)
The bear market has developed to this point, and the stablecoin market has been undercurrent. Stablecoins are one of the most successful crypto asset classes, or at least one of the easiest products to achieve mass market adoption. At the end of 2020, a large number of algorithmic stablecoins appeared, and the stablecoin market began to prosper. It easily injects liquidity into other stablecoins through Curve. Although many algorithmic stablecoins have failed since then and attracted the attention of policymakers around the world, such as the industry-shaking $40 billion collapse of Terra, for us, besides watching the excitement, there are two more important things worth watching. Attention: First, the rise of the three giants (USDT, USDC and BUSD) and their scramble to draw competitive fronts; second, a small number of small-scale on-chain competitors have begun to join the market competition with innovative product designs. In addition to increasing competition and regulatory dynamics, the stablecoin market has also changed dramatically through these turmoils. For example, the recent high interest rate environment has brought huge income opportunities to centrally issued stablecoins. Traditional finance provides more attractive yields, but also reduces the attractiveness of on-chain stablecoins. All in all, stablecoins are likely to continue to be the leader in the crypto world in terms of penetrating traditional finance and global payment networks. Although regulatory pressure will tighten, what is most interesting to us is the ability of stablecoins to still innovate on-chain as the credit market unlocks, as well as the emerging opportunities presented by programming and tokenization.
01 The three giants of stablecoins
No one follows policy developments more closely than the three major stablecoins (USDT, USDC, BUSD). They are already more or less regulated, and each of them has blocked transactions from certain addresses at the request of the U.S. government. USDC and BUSD (or Paxos) have been calling for more stablecoin regulation, seeing it as a way to assuage the fears of institutional investors and trying not to follow in the footsteps of “stablecoin” Terra. The development of a stablecoin bill, such as regulating the assets that large stablecoin issuers can hold, is a common speculation in the industry about Washington's regulatory policies. Regardless of the outcome, it is undeniable that competition among USDT, USDC, and BUSD is intensifying.
USDT’s market share has increased significantly over the past two months
Tether (USDT) is the OG (OG: old gun, meaning: veteran, also means the top, the most powerful) among stable coins. Its development roots can be traced back to the Bitcoin side chain Omnichain in 2015. So far, it remains one of the market leaders, but its lead has shrunk, from 75% market share to just over 50%. Unlike USDC and BUSD, it may be that there is no effort to build a good relationship with US regulatory agencies. However, given its core dependence on the U.S. dollar banking system, it has no choice but to play by their rules. Tether’s redemption user base is also more limited. Both BUSD and USDC allow almost any user to exchange the stablecoin for USD in a bank account. However, Tether (excluding US retail investors) charges a 0.1% fee for redemptions (up to $1,000) and requires a single redemption to exceed $100,000. This means its peg is enforced by large market makers and DEXs. USDC caters more to the policies of the United States. Some people believe that its best case scenario is to truly become the official digital currency of the United States. However, there is currently no news that the U.S. government has any plans in this regard. USDC has been vying for the lead over Tether since the beginning of 2021, until reaching over 30% market share in the past six months. USDC hopes that as its encryption technology becomes more professional, it will become more popular among institutional investors. USDC also pays less attention to CEX trading than USDT or BUSD. On the contrary, it focuses more on payment and cross-chain transmission protocol plans, and hopes to complete centralized cross-chain payments across nine public chains through USDC.
02 Emerging Contenders
MakerDAO: Flying too close to the sun
For most of 2020 and into 2022, OG’s stablecoin DAI developed a dependence on USDC, which some called “wrapped dollars.” After some reflection, founder Rune Christensen arranged a plan aimed at weaning MakerDAO off its dependence on the U.S. dollar and becoming a truly independent and stable store of value. However, this plan received poor response. The underlying dilemma MakerDAO finds itself facing is one that every creator of innovative stablecoins eventually encounters: how to scale and increase supply entirely by relying on on-chain assets and execution mechanisms. MakerDAO continues to grow in 2021 and 2022, but this growth comes at a cost: it is now nearly 60% backed by fiat stablecoins.
Source: Daistats.com
This highlights the fact that there is more demand for an on-chain stablecoin than the on-chain collateral backing it. Looking ahead, while MakerDAO is advancing strategic initiatives, such as increasing the DAI Savings Rate (DSR) to 1% and forking the front-end of Aave v3 to strengthen its position, this move is not without its benefits. It wants both decentralization and rapid growth: allowing DAI to be minted with $MKR collateral, betting heavily on real-world assets (RWA) that are easily regulated, but also grappling with regulation.
Aave's GHO: Mainly about network expansion
Rumors surrounding the launch of stablecoin plans by secondary lending platforms such as Aave have been around for some time. These lending protocols already have the critical infrastructure needed to launch stablecoins, as well as the ability to quickly liquidate invisible positions (i.e. payments). But why does the lending protocol also create its own stablecoin? The reason is the same as CEX having their own preferred stablecoin: to create a lock for their ecosystem. Aave’s GHO stablecoin is about to be launched and was deployed on the testnet last month. By its design, it doesn't offer anything new; its success will depend on Aave's network effects. Aave has defeated Compound in the sense that it can deploy to more networks and list more assets. Attracting sustained on-chain borrowing demand is a difficult task, but Aave has been leading the way for years. Like a widely distributed bank, Aave will try to leverage its existing loan customers to upsell GHO.
crvUSD and Gyroscope: Innovative Core Design
But unlike Aave, crvUSD will be based on a new innovative design, and liquidation will be replaced by a special-purpose AMM. One way to increase the efficiency of collateral is to earn fees from it through liquidity provision, in fact, crvUSD will be backed by collateral that is also a market maker in ETH and USD. crvUSD’s white paper is thick and heavy, full of mathematical theorems, but it does demonstrate a new stablecoin design that could prove a breakthrough in efficiency and attract new on-chain borrowing demand. Whether this design solves Curve's problems should be known soon. Gyroscope is another new stablecoin to be launched on Ethereum with an innovative design. It aims to limit reliance on individual oracle feed prices through meta-aggregation and indexing. It also introduces an updated version of Maker’s Peg stability module, which will attempt to prevent the Gyroscope stablecoin ($GYD) from being co-opted by centralized stablecoins when seeking peg stability. Gyroscope is online on Polygon and is now preparing to launch the mainnet. (Peg: Peg Stabilization Module is a fixed-price currency swap agreement based on Dai. It aims to provide bilateral buffer protection for the price of Dai in the event of external market shocks. Within a certain total limit, Users can mint stablecoins such as USDC into new Dai at a ratio of 1:1.)
Frax: A one-stop shop for decentralized finance
Perhaps no decentralized finance project has grown better over the past year than Frax. After successfully launching a funding-free startup in 2021 through some Ponzi economics, it formed key partnerships to integrate Frax around decentralized finance. Frax is developing not just a stablecoin, but an ecosystem of different financial products and services. Most recently, it launched one of the most successful ETH liquidity staked derivatives ever (LSD). Frax has the same problem as MakerDAO in relying on centralized USDC support, but its smaller size means it is easier to shake off negative repercussions. The success of any stablecoin will ultimately come down to having a large number of users wanting to take on debt in that stablecoin, and Frax has proven its ability to grow market share across multiple product verticals. Frax started out as a partially supported algorithmic stablecoin but is now moving to full support, having also passed the FIP-188 proposal vote late last month. This will inspire more confidence in Frax, but also means it will be harder to scale, as it will suffer from similar problems as MakerDao and DAI: how to scale and increase supply entirely by relying on on-chain assets and execution mechanisms.
LUSD&RAI: Resist the temptation to concentrate collateral
Many DeFi diehards and ETH extremists long for single-collateral DAI, which was previously fully backed by ETH. Liquity’s LUSD and Reflexer’s Rai are the only ETH stablecoins still in existence. Rai attempted to become a non-USD stablecoin in the summer of 2021, and ultimately, it failed to generate enough demand for its stablecoin, with its "non-governance" design preventing any changes to the core protocol. Ameem Solemani, one of Rai’s co-founders, explained that ETH does not make good collateral in a world of liquidity-collateralized derivatives. This derivative has the same fungibility but with an intrinsic rate of return. ETH may soon become the most popular collateral on Ethereum. This could be an issue for the liquidity of LUSD, a stablecoin that is fully backed by ETH and has a low collateralization ratio (110%), as well as a no-interest rate structure and access to yields through liquidation for LUSD holders. Its value has remained above $1 for the past six months, but is now slowly declining. While some are now touting ETH collateral, will Liquity remain competitive if borrowers prefer ETH with the same yield as LSD? It's important to remember the difference in scale. Rai is capped at $100 million. Frax is $1 billion and Dai is $5 billion. All of this combined still accounts for only 15% of the size of USDC and even less of USDT. While printing your own currency on-chain will always be tempting for an ecosystem building lending products, fiat-backed stablecoins remain the only way to satisfy demand for dollars on the blockchain.
03 What is the future development?
When interest rates are close to 0%, the stablecoin business is very simple. As for money market funds, some people have benefited from market manipulation of stablecoins (the most famous is Tether), but this yield is difficult to pass on to stablecoin holders. Massive interest rate hikes by the Federal Reserve and other central banks in 2022 reduce the yield opportunities for stablecoins. Previously, investors were willing to hold stablecoins in banks instead of dollars because they could extract more yield on-chain. But now, Compound and Aave offer interest rates on deposits of about 2%, while even retail investors in U.S. dollars can earn close to 4% interest on bank savings accounts. Will centrally issued stablecoins like USDT, USDC and BUSD need to figure out how to pass on some of their yield to their largest users? Or a smaller player like Ondo Finance, offering regulated, tokenized versions of traditional securities to users? These products are only available to accredited (money) investors, and their purchase price is at least $100,000, but the 4.7% on-chain yield backed by short-term U.S. government debt is very attractive. We can easily imagine USDT and BUSD following in the footsteps of USDC and its parent company Coinbase, which now offers MakerDAO 1.5% interest on all USDC used in its Dai peg-stability module (PSM). Other on-chain projects require fiat stablecoins for support, so it is not difficult to imagine more negotiated benefit-sharing agreements between centrally issued stablecoins and on-chain DAOs. However, it’s hard to imagine other contenders on the chain doing as well as the three major stablecoins, despite each being one of the currencies of the crypto empire. If the future is on-chain, this begs the question, will on-chain supported stablecoins (DAI, Frax, LUSD, etc.) have a place on USDC and other USD-backed stablecoins?
文章标题：Stablecoins part : Battle lines at the top & Can on-chain stablecoins break through a fiat-dominated market
Article source: https://doseofdefi.substack.com/p/stablecoins-part-one-battle-lines https://doseofdefi.substack.com/p/stablecoins-part-2-can-on-chain-stablecoins
Author: Chris Powers
Compiled by: Huohuo
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