New Stablecoin Issue: Learn to Coexist with Volatility

Source: Zuoye Waibo Mountain

Bitcoin and stablecoins are flying together, and the signs of a bull market or false fire are particularly obvious, starting from To absorb funds off-site and on-chain, let’s first look at three data to see what is happening.

1. Talk about stablecoin income alone, USDe gives an annualized rate of 27%. If you have the impression, then the rate of return has exceeded UST's 20%, far exceeding the 8% of DAI when the U.S. debt concept was most popular before August last year.
   

2. Another data is that there are more than 140 billion stablecoins in existence, second only to the US$180 billion on the eve of the Luna-UST collapse in May 2022. The stablecoin market As a signal, we are now in the middle of the bull market cycle.
   

3. In the entire stablecoin market, USDT alone accounts for more than 70%. After the collapse of Binance in FTX, someone has reached this proportion again. Among them, Sun The TRON chain accounts for more than 50% of USDT circulation, and I don’t know whether to cry or laugh.
   

This round of stablecoin competition is generally divided into two main categories: on-chain stablecoins + over-collateralization mechanism and on-chain stablecoins + US dollar reserves. Mode, the occasional algorithm-like stablecoins are not pure, and traditional stablecoins such as Rebase have basically disappeared. Surprisingly, Solana’s YBX, built by Marginfi based on LSD, has the shadow of a new stablecoin, and then Ethena was issued USDe is taking a hybrid route of introducing volatility and ETH collateral to strike a balance between decentralization and value anchoring.

In general, innovation is mainly focused on Bitcoin and volatility processing. This is not to say that they have the possibility to replace USDT, but in terms of mechanism, personal opinion , USDT and USDC have become de facto retail digital dollars, and are very likely to be potential digital dollars.

It can be found that USDT accounts for the highest proportion, USDC is eager to be listed, and FDUSD is behind Relying on Binance to replace BUSD, TUSD has had a bad year, and everyone is unclear, so we can only lament that the ghost of Sun Ge is still there.

Question fluctuations, understand fluctuations, and utilize fluctuations

First, take out USDT as a background board. The U.S. government is hesitant to move forward with digital dollars. USDT and USDC are responsible for the de facto retail digital dollars. role, USDT has actually become a part of the US dollar, and has gradually become too big to fail. This is not to say that the market value of 100 billion is important,but that USDT is the de facto backbone of DeFi, the CEX trading medium and the third The three elements of legal currency in the three worlds are jointly determined.

USDT’s reserve opacity problem has existed for a long time, but it is not important. Disclosure and auditing can also be regarded as a step forward for everyone. If USDT is really to be cancelled, then please refer to the fate of BUSD, the United States The government definitely has this ability.

The technical feature of USDT is to use TEDA as the guarantor, anchoring the US dollar at 1:1 to issue on-chain assets. TEDA is responsible for both casting and destruction. Its profit lies in buying "equivalent to the US dollar" after receiving the US dollar. ” assets, such as cash and short-term deposits.

However, once the assets are exchanged for non-USD assets, the volatility of the collateral or the stable currency issued will face huge volatility. The instability of UST’s value is only superficial. The core is that it encounters a run without any Rescue, Lido's stETH also encountered an anchoring crisis, and finally passed smoothly. Another negative case is FTX and FTT, so the volatility is not terrible, but I am afraid that no one can save it.

• Collateral volatility: Non-USD, non-Bitcoin and Ethereum collaterals currently do not seem to be really successful, UST's Casting based on Luna's combustion, a dangerous or great experiment right now is the gain of YBX based LSD assets.

• The volatility of stablecoins: The failure of the Rebase mechanism does not lie in the mathematical model, but in the lack of means to deal with the scale effect. If a stablecoin of US$100 is issued, the reserve of US$50 The reserve fund is not a big problem. It can be easily dealt with in the event of a run or liquidation. However, the market value of US$10 billion cannot be replenished by simply borrowing money.

The volatility of collateral is no longer deep, and if both the US dollar and Bitcoin collapse, it is a much more serious problem than making or losing money.

We mainly discuss how to deal with the volatility of stablecoins. The over-collateralization mechanism can suppress volatility, but it will pay a serious price-loss of liquidity. A ratio of 150% to 200% means at least Half of the assets in circulation are lying idle, which is an absolute disaster for capital efficiency.

If volatility cannot be eliminated, there are two ways to coexist with it, to reduce volatility or to increase returns.

The current mainstream choice is to increase the rate of return. On Bitcoin, there is bitSmiley’s stablecoin BitUSD + BitLending lending route. On Solana, it is Marginfi’s liquidity-based pledged stablecoin YBX. The advantage of this is to enjoy The "stability" of the underlying SOL assets while sharing the income of LST ensures a minimum rate of return. The overall route is similar to the operation method of LRT re-pledge.

Moreover, the linked assets have also begun to become diverse, especially links that focus on reality:

• For example, Frax issuance There are three types of linked assets, the most common US dollar stable currency FRAX, FPI linked to CPI, and frxETH linked to ETH as an LSD product;

• BitSmiley also plans to introduce BitLending’s CDS credit default swap product, but in general BTC ecosystem entrepreneurs have to face the problem of how to outperform BTC holding income. This is also the frustration of the Bitcoin ecosystem. Most BTC holders are looking at BTC. The value storage function, rather than the derivative income, so what to do after that personally feels that it will not be smooth sailing.

• USDe is designed based on the ETH spot and futures hedging mechanism, hoping to provide a global access-free Internet bond for ordinary individuals to share stable income from savings. The mechanism of USDe is relatively complex. The simple understanding is that the value of ETH is stable and large enough to handle market fluctuations. The income sources of bonds can be summarized into three categories: interest income, capital gains and possible leverage income. , that is, ETH spot pricing and trading will generate income, and the leverage income combined with the hedging mechanism is exactly a closed loop with the design mechanism of USDe.

When stablecoins are no longer stable

USDT was first issued on Bitcoin OmniLayer in 2014. It has been more than ten years since USDT has abandoned OmniLayer Switching to the embrace of RGB, but overall, the pattern of Ethereum being responsible for large-value payments and Tron being responsible for daily use has been formed and is basically difficult to change.