Encrypted Stablecoin Report: Tether issued an additional 300 million USDT, comparison of decentralized stablecoins

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To help crypto market participants keep updated on the development status of stablecoins, we launched the MYKEY Stablecoin Report to share our interpretation of the development status of stablecoins and analysis of their development trends. Looking forward to maintaining exchanges with peers and jointly exploring the development prospects of stablecoins.

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• In the past week, the market value of stablecoins has increased by about 276 million U.S. dollars; USDT has issued an additional 300 million U.S. dollars in the Tron network

• Bitfiniex announces to integrate USDT into OMG Network

• MakerDAO Passes Executive Vote to Add Stablecoin TUSD (TrueUSD) as Dai Collateral

• We propose a new taxonomy of stablecoins

• 1. Overview of Stablecoin Data

1. Overview of Stablecoin Data

Source: MYKEY, Coinmetrics

market liquidity

Source: MYKEY, Coinmetrics

Source: MYKEY, Coinmetrics

Source: MYKEY, Coinmetrics

Among them, USDT was issued an additional 300 million; the circulation of DAI, GUSD, and TUSD increased by 3.65 million US dollars, 3.63 million US dollars, and 870,000 US dollars respectively; while the supply of other stablecoins decreased, ranked by decrease, BUSD, PAX, USDC, HUSD decreased by $14.13 million, $8.04 million, $5.39 million, and $4.09 million, respectively.

The additional issuance of USDT last week was all issued on the Tron network. Currently, the USDT in the Tron network accounts for 26.75% of the total USDT circulation. In addition, Bitfiniex announced on June 2 that it will integrate USDT into OMG Network. OMG Network is the second-tier network of Ethereum, and this move will ease the pressure on the Ethereum network from activities on the USDT chain.

Source: MYKEY, DeBank

Number of currency holding addresses

Source: MYKEY, DeBank

Source: MYKEY, DeBank

Source: MYKEY, DeBank

The decrease in the number of currency-holding addresses is mainly from USDT, with a total decrease of 27,459, while it has maintained an increase of 100,000+ in the previous few weeks.

Source: MYKEY, Coinmetrics

Active addresses

Source: MYKEY, Coinmetrics

Last week, the overall number of active addresses of stablecoins continued to be at a historical high.

Source: MYKEY, Coinmetrics

Number of transactions on the chain in 24 hours

Source: MYKEY, Coinmetrics

secondary title

24-hour on-chain transaction volume

Source: MYKEY, Coinmetrics

Source: MYKEY, Coinmetrics

Last week, the daily transaction volume of major stablecoins maintained the recent transaction level, and the proportion of daily transaction volume of each stablecoin did not show a trend change.

2. Comparison of decentralized stablecoins

Redefine the classification of stablecoins

In 2018, people divided stablecoins into three categories:

But with the development, we see that the mortgage assets behind USDT are unknown, but it can be confirmed that it is not 100% mortgaged by legal currency assets. In addition to corporate debt, USDT’s collateral may also include encrypted assets such as Bitcoin; MakerDAO has introduced legal currency as a Mortgage USDC may introduce other tokenized traditional assets in the future; Basis has been shut down, and other algorithmic bank stablecoins have no successful cases.

Therefore, the above classification is no longer applicable to current stablecoins. In our opinion, a more appropriate classification should be:

Source: MYKEY

Source: MYKEY

The above table compares different decentralized stablecoin projects, and then we analyze them to some extent.

Introduction to CDP Stablecoin Mechanism

MakerDAO is a leader in decentralized stablecoin projects, and its US dollar stablecoin DAI has a market capitalization of $111 million in circulation, an all-time high.

MakerDAO's stablecoin generation mechanism is Collateralized Debt Position (CDP). The operation of this mechanism for two and a half years has verified its reliability. It can be seen that other stablecoin projects also mainly use this stablecoin generation mechanism. Here we briefly introduce the stable currency system based on CDP.

CDP is a smart contract running on the blockchain. He is a core component of this type of stablecoin system, whose purpose is to mortgage the assets permitted by the agreement and generate stablecoins. Collateral assets are escrowed in this smart contract until the generated stablecoins are returned to the contract.

The volume of CDP determines the total supply of stablecoins. People can generate more stablecoins when they mortgage more assets in CDP, and destroy existing stablecoins when repaying the position. This controlled cycle of minting and burning allows the contract to calculate the total supply of stablecoins, proving that the value of collateral can always guarantee the value of circulating stablecoins.

The collateral value in CDP is always set higher than the debt value, and the stable currency system will set a minimum collateral rate. Liquidation will be triggered when the mortgage rate of the system is lower than the minimum mortgage rate requirement. Some stablecoin systems require an external liquidator, such as MakerDAO, while some stablecoin systems have a liquidation module that automatically executes liquidation, such as Acala. Liquidated CDPs generally need to pay certain fines to motivate CDP holders to properly manage them.

Mortgage assets to generate stable coins is actually a kind of lending behavior, so generally need to pay a certain amount of interest, the interest paid is called the stability fee. The size of the stability fee is determined by its system governance module (usually determined by the proposal and voting of the native token holders of the stablecoin system), and it is an adjustment tool for the stablecoin system.

Celo's Stablecoin Mechanism

In the comparison table, we can see that except for Celo, other stablecoin systems have adopted the CDP mechanism. Unlike CDP's over-collateralization (minimum collateralization rate > 100%), Celo uses cGLD with an anchored USD value of 1:1 as a reserve.

In order to maintain the stability of cUSD, Celo has set incentives for users, so that users can adjust the supply of cUSD spontaneously for the purpose of arbitrage, so that the supply of cUSD can match the demand and ensure the anchoring of prices.

Celo's elastic supply mechanism allows users to create new cUSD by sending $1 worth of cGLD to the reserve, or redeem $1 worth of cGLD by burning 1 cUSD. This mechanism creates incentives.

When the demand for cUSD decreases, users are motivated to buy 1 cUSD at a price below 1 dollar in the market and redeem it for cGLD worth 1 dollar, and users can sell cGLD in the market for 1 dollar. When demand for cUSD increases, users are motivated to buy $1 worth of cGLD on the market, exchange it with the protocol for one cUSD, and then sell that cUSD at the market price for more than $1.

The market price of cUSD can be pushed back to $1 through this connection to cGLD in times of decreasing or increasing demand, without the protocol itself estimating its optimal expansion or contraction amount.

To encourage long-term holdings of cGLD and ensure reserves remain healthy, cGLD transactions require variable transfer fees - the lower the reserve ratio, the higher the transfer fee. Additionally, if the reserve ratio falls below the target level, a significant portion of the block reward will be allocated to the reserve.

Comments on the selection, value capture and development prospects of various decentralized stablecoin public chains

Another major difference in the stablecoin system above is the choice of public chain. Is it necessary for the stablecoin system to build its own public chain?

We believe that from a performance point of view, it is necessary to build a public chain by yourself. Currently we see that Ethereum has been congested for a long period of time due to increased activity on the chain, and gas fees have also become high. Moreover, through the data, we can see that stablecoin-related transactions account for a large proportion of them. If the situation does not improve for a long period of time, the development of new stablecoins in this environment will undoubtedly be limited.

In addition, in the early stage, the self-built public chain will help the bootstrapping of the stablecoin system. The native token of the stablecoin system with self-built public chain has other uses besides the governance of the stablecoin protocol, mainly for staking to ensure the security of the public chain. The resulting block rewards and fee income other than the stability fee will attract people to join the network.

But in the long run, the development of stablecoins is across the public chain (or "off-chain", blockchain agnostic). We even believe that as a stable currency, as an asset, cross-chain application in different scenarios is a manifestation of its wide acceptance, and a successful stable currency must be like this. We've seen this with USDT, and BTC as an asset has signs of being "off-chain".

This development trend will guide the flow of stablecoins to the chain with the richest ecology and the most scenarios. Whether this chain is a self-built public chain is unknown. The development of the public chain ecology has a network effect, and the current performance limitation of Ethereum is a window of opportunity for other public chains.

From an investment perspective, the value capture of the native token of the stablecoin system is divided into two parts. Part of it comes from the stability fee, which depends on the growth of the stable currency itself; and the growth of the stable currency depends on the recognition and demand of the market. Another part of the value capture of the native token of the stablecoin system comes from block rewards and fee income, which depends on the degree of network prosperity of the public chain.

The stablecoin system of the self-built public chain may face such a problem: under certain circumstances, the growth of the stablecoin scale does not necessarily bring about the prosperity of the public chain ecology (or limited assistance); but if the public chain is not prosperous enough, it may Affects the size of the stablecoin. Because the stable currency system of the self-built public chain needs to use its own native certificate to ensure the security of the system, when the public chain itself is too depressed, the value captured from the stability fee may not be enough to protect the security of the system. Stablecoins without a self-built public chain will be secured by the public chain where it is located (MakerDAO is handed over to Ethereum, Equilibrium is handed over to EOS), and this problem does not exist.

Therefore, the stable currency system of the self-built public chain faces the dual tasks of stable currency market promotion and public chain ecological construction. In this regard, Kava as the Cosmos Hub and Acala as the Polkadot parallel chain may have an advantage over the independent public chain Celo.