In the past two years, with the development of the DeFi ecosystem, the demand for stablecoins has also increased greatly. For the gradually expanding crypto market, the emergence of stablecoins has provided more convenience to the market. Given the growing demand, various stablecoins have emerged in an endless stream of varying quality. Although demand is a hard requirement, the instability of stablecoins has also become the most worrying point for users. With the death of UST, the stablecoin market ushered in a brief darkness. Who can become the protagonist of the fairy tale and incarnate Apollo to bring light to the stablecoin market!
Briefly describe the status quo of decentralized stablecoins
Stablecoins are issued one after another. They want to become the Apollo of the stablecoin market, and they want to bring light and hope to the stablecoins. The funny thing is that they do not have any innovation and optimization, and try to use immutable mechanisms and exaggerated language to become the mainstay of stablecoins, this is undoubtedly to cheat money.
Let’s briefly talk about the more popular decentralized stablecoins in the market: DAI, MIM, USDD.
We all know the old-fashioned decentralized stablecoins. The over-collateralized stablecoin, after the death of UST, became the largest decentralized stablecoin by market cap. The high risk of liquidation and the low utilization rate of funds are the disadvantages it faces. At present, DAI is relatively stable. In order to maintain stability, a large amount of USDC is reserved in the asset, but USDC is a centralized stablecoin. Although the development is stagnant at this stage, DAI is also gradually seeking breakthroughs. We will not talk about the future, at least it seems that DAI does not meet my expectations for a decentralized stablecoin.
The market cap of MIM is second only to DAI, but the difference is still relatively large. Some aspects of it are similar to the mechanism of DAI, and it is also an over-collateralized stablecoin, which has low capital utilization and faces liquidation risks. Unlike DAI, MIM supports cross-chain. To sum up, a little innovative, but not much.
The stablecoin just issued by Tron in May, the stability mechanism is called “the second UST” by many users. The reason is that its mechanism is highly similar to LUNA. As an algorithmic stablecoin, USDD is relatively transparent, and due to the support of Tron, USDD’s capital reserves are also very strong. Despite this, USDD still de-peg for more than a week in the stETH event, indicating that USDD’s anti-risk ability is not strong.
Killer Stablecoins: The Future of Decentralized Stablecoins
The decentralized stablecoin market is stagnant, and the risks faced by stablecoin projects are beyond our users’ tolerance.
Looking at the entire stablecoin market, the innovations, stability and transparency of these three stablecoins are relatively good.
GHO is a multi-collateralized decentralized stablecoin that fully supports the Aave protocol and is pegged to the U.S. dollar. It is also a popular decentralized stablecoin recently. Aave is a decentralized lending system that can provide multiple application scenarios for GHO, and the collateral for minting GHO can continue to earn interest. The borrower mortgages the assets, mints GHO, and continues to enjoy the interest brought by the collateral. There is room for arbitrage when prices deviate, thereby exploiting arbitrageurs to return to stability. Second, the dynamic adjustment of borrowing rates can also ensure stability.
When the price of $GHO>$1, you can use the stablecoin to mint $GHO and sell it at a high price for arbitrage.
When the price of $GHO>$1, GHO debt can be repaid.
The emergence of GHO has greatly improved the liquidity of the stablecoin market and increased the market’s confidence in decentralized stablecoins. But the main problem is that the borrowing rate of GHO is determined by the community, and the borrowing rate is a key factor in maintaining the stability of GHO, and there are risks.
Unlike other stablecoins, FRAX is a partially algorithmic stablecoin. To mint FRAX, you need to own two tokens: USDC (or another supported crypto asset) and FXS, relying on arbitrageurs to maintain stability. In Frax v2, the AMO mechanism was introduced to promote the development of Frax. In the previous stage, FRAXBP was launched to further increase liquidity. The risk of FRAX is that FXS itself is the governance token of Frax, which can be issued indefinitely. The value depends on the issuing institution and is not stable. This goes back to the problem of UST. Both FXS and LUNA are equivalent to Negative Equity. The existence of FXS makes Frax face a certain degree of crisis.
Curve is a popular stablecoin trading platform. Friends who are familiar with stablecoins must know about Curve. So why put Curve here? The reason is that Curve is about to issue a stablecoin, and it is an overcollateralized stablecoin. After the failure of UST, many people want to carve up the market of decentralized stablecoins, and Curve is one of them. The details of the stablecoin have not been disclosed, and you can look forward to it.
TiUSD is the first decentralized stablecoin using Use-to-Earn launched by TiTi Protocol. Transparency, stability, high capital utilization, strong anti-risk ability, TiUSD is all satisfied.
Similar to GHO, TiUSD also has multi-asset reserves, a mechanism that can protect against risks to the greatest extent. The difference is that TiUSD has no over-collateralization, which solves the risk of liquidation of users and improves the utilization rate of their funds. At the same time, TiUSD introduces MMF, TiTi-AMM, Reorders, etc., creating a new game mode and further ensuring stability. At present, TiTi Protocol has completed a financing round, the main network has not been launched yet, but the test network has been opened. Partners who focus on the stablecoin track can try it out. After all, the testnet is a good opportunity to learn about a project at a low cost.
In the battle of the gods, who can bring light and hope to the decentralized stablecoin?
Undoubtedly, if web3 wants to develop and the encryption market wants to progress, the demand for stablecoins will continue to expand, and the demand for decentralized stablecoins will become higher and higher. Therefore, choosing a stable and highly risk-resistant decentralized stablecoin is an indispensable link.
At present, there are not many perfect decentralized stablecoin projects in the market. GHO has been recognized by many people, FRAX is also making progress, FRAXBP is a good opportunity, Curve has entered the stablecoin market and compete for market share, TiTi Protocol has a perfect mechanism, high transparency, security and stability. The myth war of decentralized stablecoins is about to kick off, maybe the head of the gods is here!