Editors Note: This article comes fromWebX Labs Daily (ID: gh_3bc595acebaf), reprinted by Odaily with authorization.
WebX Labs Daily (ID: gh_3bc595acebaf) In 2020, the first year of DeFi, a wave of DeFi came suddenly and unexpectedly. Its tipping point was the launch of the COMP governance token in June, followed by a wave of domestic projects issuing coins, and finally liquidity mining pushed DeFi to the top The most frenzied peak is not only the upsurge of DeFi, but the stable currency is also expanding its own market. In this first year of DeFi, USDT, the leading stable currency, has increased from the circulation of 2 billion US dollars at the beginning of the year to the present. How attractive is the circulation of 11 billion U.S. dollars and the growth rate of 550%, not to mention the core DAI in the DeFi track, which has gone from the issuance of 100 million U.S. dollars to the current 900 million in just five months. The issuance of U.S. dollars directly occupies the third position in the stablecoin market. Although stablecoins are not the hot spot of this wave, they are the beneficiaries of every market progress. (data from DeBank) A Simple Definition of Stablecoins Stable currency is a digital currency with a relatively stable market price, that is, legal tender in the digital currency market. Benchmark against other funds. At the same time, a currency in the virtual world is connected to assets in real life. From this, the earliest stable currency USDT appeared, not only as a bridge connecting real assets, but also as a hedging product in the digital currency market, to avoid huge outflows of funds. secondary title The Three Core Categories of Stablecoins Anchoring fiat currency Decentralized Asset Mortgage secondary title The Difference Between Stablecoins and Fiat Currencies secondary title Applications of Stablecoins in the Current Market The most important role of stablecoins in the digital currency market is as a trading medium. Transaction bridges and media act as a trading pair Safe-haven currencies in the digital currency market For investors who do not plan to leave the digital currency, when the future market expectations are not ideal, they can directly use the stable currency for arbitrage hedging, or directly convert the currency in their hands into a stable currency for hedging operations. secondary title Coinage spread Interest spread profit is simple and crude. The biggest profit point is the income generated by mortgaging US dollars or other assets behind the back. The simplest is the interest on mortgaging assets. At present, the total USDT issuance is 10.3 billion US dollars. The interest income from deposits in the bank is a very objective income. And this is only the income generated when USDT is really anchored to the US dollar at 1:1 without any asset reinvestment. secondary title Are Stablecoins Really Stable (Impossible Triangle) The solution to the largest stablecoin USDT The solution to DAI, the most concerned stablecoin at present The success of DAI gained market trust and distanced itself from monetary politics through multi-guaranteed non-national centralized currencies. The DAI price was softly pegged to the U.S. dollar to obtain a fixed exchange rate through algorithmic banking methods, and high capital liquidity was obtained through the previous DeFi boom. However, it has not experienced a large-scale redemption in the market, and most of its reserve funds are highly volatile currencies. It will still take time to test whether it can complete the 1:1 exchange with the US dollar when the market fluctuates greatly. secondary title Looking at Stablecoins from the Perspective of Market Application Currently, stablecoins in the market can be divided into three categories based on issuing institutions and application scenarios. The first type is stablecoins issued by centralized institutions, led by USDT, USDC, and PAX, and the second type is stablecoins issued by centralized exchanges. Coins, representing Huobi HUSD, Binance BUSD, and USDK, etc. The third type is a stable currency issued by decentralized financial DeFi with an anchoring mechanism, representing Dai, USDX, etc. The three types are different due to their origins , the application scenarios and directions are already different. MakerDAO（Dai） Stablecoins issued by centralized institutions and centralized exchanges The market applications are relatively similar, relying on the exchanges huge asset entrance development, and playing an important role in the exchange ecology as trading pairs and safe-haven currencies (trading medium and stored value), the goal of the stable currency issued by the exchange is to use its own exchange Taking advantage of Fang’s advantages, it seizes the stable currency market occupied by USDT, and uses its own stable currency to exchange with other currencies. On the one hand, it is convenient for customers to deposit and withdraw funds and deposit and withdraw operations, and on the other hand, it will divert the stable currency issued by itself to occupy the market. Stablecoins issued by centralized institutions have strict financial audits as their own advantages. However, the multiple over-issuance of USDT and suspected manipulation of the BTC market have caused the stablecoin mechanism of centralized institutions to be questioned by the outside world. Stablecoins under Decentralized Finance DeFi Kave（USDX） It is a DeFi project built on Ethereum that allows holders of cryptocurrencies to apply for over-collateralized loans. These loans are paid in the form of DAI, a decentralized stable currency that is linked to the value of $1 through monetary policy leverage. With the hook, users can generate DAI by depositing cryptocurrencies accepted by the protocol. From the users point of view, MakerDAO pledges the users digital asset ETH through a smart contract, and then lends the user the same amount of stable currency Dai for free use. The biggest difference from stablecoins issued by centralized institutions is that the overall operating mechanism of Dai is completely open and transparent. Not only is Dai itself transparent, but the amount of ETH exchanged for Dai is also transparent to the outside world. More importantly, Dai is always over-collateralized, taking advantage of risks The protection and arbitrage liquidation mechanism deducts the collateral, so that the Dai reserve is always guaranteed by sufficient assets, so that Dai always has sufficient cashability no matter how violent the market fluctuations are. It is a multi-asset DeFi platform based on the Cosmos ecology. At the same time, Kava is a separate public chain, which is very different from Maker based on Ethereum. The unique cross-chain feature of Cosmos makes it easier to implement public chains in the same ecology Interoperability across chains. The most important advantage of Kave over Maker is that DAI can only be generated through ETH mortgage. When the price of Ethereum goes down, the supply of DAI will be reduced, which is subject to strong market limitations. Kaves logic can be mortgaged by USDC, PAX, DAI When USDX is generated, at the same time, USDX can be exchanged into other stable currencies through mindfulness, which greatly increases the liquidity of the hurdle market. The following is the current market data of the top ten stablecoins: secondary title Stablecoins still need stability as the top priority For stablecoins, maintaining price stability is the most important thing, but to ensure price stability, it is necessary to maintain a low-friction recovery and issuance mechanism, capital utilization rate, and sufficient market convenience. The reason why USDT has already occupied two-thirds of the market share in the case of continuous thunderstorms is that the most important thing is the adaptation of the market and the convenience of exchange, while DAI has been rejected due to the market limitations of Ethereum and the high gas fee. limited room for growth. To occupy a place in the stable currency market that major institutions are vying for, there are still the following points that need to be paid attention to. Sufficiently low-friction issuance and recyclingWebX Labs Daily (ID: gh_3bc595acebaf)
secondary title
Algorithmic Bank Support
Algorithm-backed stablecoins are not collateralized. These stablecoins, represented by Basecoin and MakerDAO, attempt to maintain their fiat pegs through central bank-like monetary policies.
At present, the most common trading pairs in major exchanges are still based on various stablecoins, such as USDT, USDC, and DAI. In addition, there are also trading pairs that use mainstream currencies BTC, ETC, and ETH as benchmarks. Using stablecoins as trading pairs can clarify unilateral volatility, formulate trading plans and clear market trends in a simpler way.
First of all, institutions seized the market to play the game of enclosing land, and obtained the coinage rights obtained by countries in the real world relying on years of national credit, armed forces, and technology, and the goal is directly at the core of the traditional financial field (banks).
The success of USDT is to completely abandon the independence of monetary policy, fully anchor the exchange rate and reserves to the value of the US dollar, and obtain extremely strong liquidity and the stability of the US dollar. However, if USDT is not anchored to the US dollar, it will lose the market trust, that is, the core stability of the stable currency is lost.
USDX adopts an elastic supply mechanism. Under normal circumstances, the supply of USDX is linked to the value of mortgage assets and the mortgage rate. However, if there is a liquidation or debt auction, the system will expand the supply of USDX accordingly to achieve an over-collateralized balance.
That is, to reduce the transaction difficulty of assets, to reduce issuance friction is to make it easier for market participants to redeem the diversified assets in their hands into the issued stable currency, and to have enough trading channels and OTC channels, and to reduce the difficulty of recovery is to It enables market participants to directly exchange the issued stable currency for other assets that they need to invest in.
Increase capital utilization rate (mortgage rate)
The fund mortgage rate is a unique point of stablecoins under DeFi. Based on the decrease in fund utilization rate caused by the over-collateralization model, although liquid mining has made up for the problem of insufficient fund utilization rate with a high rate of return in a short period of time, the overall The over-collateralization rate as high as 120%-150% not only limits the development of the market, but also reduces the attractiveness of the lending model to users. Stablecoins based on DeFi still need to learn from the traditional financial credit model, effectively increasing the utilization rate of funds will have more benefits that can be distributed to market users.
Sufficient application scenarios
