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From the bull market of 2021 to the bear market of 2023, the cryptocurrency market underwent significant changes. The total market capitalization dropped from 3 trillion USD to 1 trillion USD, but the stablecoin market value only decreased by 30%. As of December 2023, CoinGecko data shows that the total market capitalization of stablecoins is approximately 130 billion USD. Tether (USDT) dominates with a 70% share, while USDC holds about 20%, and the rest is distributed among various other stablecoins.
Against the backdrop of high ZF bond yields (>5%) in the first quarter of 2023, Tether's net profit was 1.48 billion USD. The quarterly return on cash and cash equivalents investments approached 1 billion USD in the third quarter of 2023, highlighting the market's profitability.
In addition to Tether and USDC, many on-chain stablecoins have emerged, reflecting the demand for different types of stablecoins in the DeFi space, both centralized and permissionless. The success of these emerging stablecoins depends on maintaining liquidity and attracting major DeFi protocols.
While new on-chain stablecoin protocols continue to emerge, over 90% of the market value remains concentrated in centralized stablecoins. Some startups attempt to challenge the dominance of Tether and Circle by leveraging the yield generated from US ZF bonds. However, the long-term development of centralized stablecoins requires more collaboration with traditional financial institutions and regulatory authorities. This includes partnerships with compliant custodians, sufficient capitalization, and obtaining relevant licenses.
To build the next "super stablecoin" similar to USDC and USDT, four key conditions need to be met for the advantages of both centralized and decentralized stablecoins to be fully realized:
1. USD-based stablecoin: The stablecoin should be based on the US dollar, which has widespread acceptance globally, and its underlying assets should be widely applicable.
2. Global regulatory recognition and licensing: A "super stablecoin" needs a global positioning from the start, gaining approval from US regulatory authorities and obtaining global licenses.
3. Innovative financial attributes: The super stablecoin should possess innovative financial attributes such as profit-sharing mechanisms to build community support and sustainable growth.
4. Seamless integration into the DeFi ecosystem: The super stablecoin needs to become an integral part of the DeFi Lego to achieve widespread adoption in the DeFi space.
The stablecoin market plays a crucial role in the cryptocurrency ecosystem and is expected to continue evolving and expanding. To successfully create the next super stablecoin, a series of DeFi gameplay advantages may need to be met, along with building partnerships.
**II. Classification of Stablecoins**
**Decentralized Stablecoins:**
To address the issues with centralized stablecoins, decentralized stablecoins have introduced innovative solutions. These new stablecoins are built on blockchain protocols, making them more transparent. Examples like Curve's crvUSD, AAVE's GHO, and Dopex's dpxUSDSD are stablecoins based on on-chain protocols, reducing centralization factors. Decentralized stablecoins can be divided into two main categories:
**Overcollateralized Stablecoins:**
Overcollateralized stablecoins are the most common type of decentralized stablecoin. Their asset backing usually comes from other cryptocurrencies like Ethereum or Bitcoin to maintain their relative value stability. For example, MakerDAO's DAI is backed by Ethereum as collateral. The latest trend involves diversifying collateral from traditional centralized stablecoins and major traditional digital assets to more diverse digital currencies, increasing liquidity and providing more use cases. For instance, the largest collateral in Curve's crvUSD is stETH, and Ethena's stablecoin is also based on Ethereum and Liquid Staking Tokens (LST).
*Potential Advantages:* Overcollateralized stablecoins may go beyond being a simple payment tool and evolve into more comprehensive digital asset management tools, providing users with extensive choices and flexibility.
*Potential Disadvantages:* One major issue with overcollateralized stablecoins is the risk of reduced asset utilization due to excessive collateral, especially when volatile assets like Ethereum support them. This volatility brings the possibility of forced liquidations, presenting significant challenges.
**Algorithmic Stablecoins:**
Algorithmic stablecoins are one of the most decentralized types. The idea is to maintain a fixed price by utilizing market demand and supply without the need for actual collateral support. These stablecoins use algorithms and smart contracts to automatically manage supply to keep the price stable. For example, Ampleforth is an algorithmic stablecoin designed to keep its price close to $1. It aims to adopt an elastic supply mechanism, adjusting supply based on market demand to balance the price. When the price is above $1, the supply increases, and when it's below $1, the supply decreases.
Additionally, some hybrid algorithmic stablecoins attempt to combine algorithmic and fiat reserve approaches. For instance, Frax is an algorithmic stablecoin designed to keep its price close to $1. It uses a hybrid stablecoin mechanism, partially supported by fiat reserves and partially managed by an algorithm to maintain price stability.
*Potential Advantages:* Algorithmic stablecoins aim for decentralization. Compared to other solutions, we believe stablecoins may have scalability advantages. Algorithm-based stablecoins use transparent and verifiable code, making them attractive.
*Potential Disadvantages:* Algorithmic stablecoins are susceptible to market sensitivity, like all digital assets. When there is a decreased market demand for algorithmic stablecoins, their price may fall below the target value. Additionally, the operation of algorithmic stablecoins relies on smart contracts and community consensus, which may bring governance risks such as code flaws, hacking attacks, manipulation, or conflicts of interest.
**Centralized Stablecoins:**
Centralized stablecoins usually use fiat currencies as collateral stored in off-chain bank accounts as reserves for on-chain tokens. They solve the value anchoring problem of virtual assets by pegging digital assets to physical assets such as USD or gold, stabilizing their value. They also address the access issue of virtual assets in a regulatory environment, providing users with |
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Post time 10-1-2024 06:55:21