New Thoughts on Stablecoins: Learn to Coexist with Volatility

As an important asset in the cryptocurrency market, stablecoins have always attracted much attention. As the market develops, how to deal with volatility while maintaining stability has also become a question worth thinking about. PHP editor Xigua will take you to explore new thinking on stable coins and explore how to find a balance point in a volatile market.

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

1. Talking about stablecoin income alone, USDe gives an annualized rate of 27%. If you have an impression, the rate of return has exceeded UST's 20%, and far exceeded DAI before August last year. 8% when the U.S. debt concept was most popular.
2. Another data is that the existing stablecoins exceed 140 billion, second only to the US$180 billion on the eve of the Luna-UST collapse in May 2022. Taking the stablecoin market as a signal, it has now reached the middle of the bull market cycle stage.
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, Sunge’s TRON chain accounts for 50% of USDT issuance. Above, I don’t know whether to cry or laugh.

This round of stablecoin competition is generally divided into two mainstream models: the over-collateralization mechanism of on-chain stablecoins and the US dollar reserve of on-chain stablecoins. The occasional algorithm-like stablecoins are also not pure. Rebase When the traditional stable calculation route has basically disappeared, surprisingly, Solana’s YBX built by Marginfi based on LSD has the shadow of new stable calculation, and then USDe issued by Ethena takes a hybrid route of introducing volatility and ETH mortgage. Strike a balance between decentralization and value anchoring.

In general, innovation is mainly focused on Bitcoin and volatility handling. This does not mean that they have the possibility to replace USDT, but in terms of mechanism, personal opinion, USDT and USDC have become de facto The retail digital dollar is likely to be a potential digital dollar.

<img src="https://img.php.cn/upload/article/000/887/227/170928207624403.jpg" alt="New Thoughts on Stablecoins: Learn to Coexist with Volatility">稳定币时局图

It can be found that USDT accounts for the largest share, USDC is eager to be listed, FDUSD relies on Binance to replace BUSD, TUSD has been in 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

Let’s first use USDT as a background board. The U.S. government is hesitant to move forward with digital dollars. USDT and USDC assume the role of de facto retail digital dollars. , USDT has in fact 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 legal currency of the third world. factors are jointly determined.

USDT’s reserve transparency has been controversial, although this is not insignificant. Disclosures and audits can be seen as a way of providing transparency to the public. If it decides to abolish USDT, it may be inspired by the situation of BUSD, and the US government has the power to intervene.

The technical feature of USDT is that it uses TEDA as a guarantor to issue assets on the blockchain with a 1:1 anchoring of the US dollar. TEDA is responsible for minting and destroying assets, and its profits mainly come from receiving U.S. dollars and using them to purchase U.S. dollar-equivalent assets, such as cash and short-term deposits.

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

• Volatility of Collateral: None of the non-USD, non-Bitcoin and Ethereum collaterals seem to be really successful at the moment, the minting of UST is based on the burning of Luna, now a dangerous or great experiment It is the return of YBX based on 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 100 US dollars is issued and a reserve of 50 US dollars is reserved, the problem is not big. It is easy to deal with a run or liquidation, but a market value of US$10 billion cannot be made up by simply borrowing money.

The volatility of collateral is no longer deep. If both the US dollar and Bitcoin collapse, it will be 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 circulation Half of the market value of assets is 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 yields.

The current mainstream choice is to increase the rate of return. On Bitcoin, there is bitSmiley’s stablecoin BitUSD BitLending lending route. On Solana, there is Marginfi’s liquidity-based pledge stablecoin YBX. The advantage of this is to enjoy the underlying SOL The "stability" of assets, while sharing the income of LST, guarantees 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 has issued three types of linked assets, the most common US dollar stable currency FRAX, and FPI linked to CPI, as well as frxETH, which is linked to ETH by LSD products;
• BitSmiley also plans to The CDS credit default swap product for bitLending was introduced, 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 The value storage function of BTC is not derivative income, so what to do next 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. A 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 Transactions will generate income, and 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 and switched to RGB, but overall The pattern in which Ethereum is responsible for large-value payments and TRON is responsible for daily use has been formed and is basically difficult to change.

The above is the detailed content of New Thoughts on Stablecoins: Learn to Coexist with Volatility. For more information, please follow other related articles on the PHP Chinese website!