Stablecoins – The “economic moat” of downtrend projects?

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2022-07-26 19:04:42

Stablecoins are perhaps the most “close to the real world” asset in the cryptocurrency market. However, in the past few months, especially after the collapse of the UST, the stablecoin market has seen a lot of volatility. Today, let’s review the notable changes from stablecoin projects, so that you can make useful judgments for your future investment decisions!

Stablecoins – “Economic moat” of downtrend projects?

overview

Data from Defi Llama shows that the total capitalization of stablecoins has fallen sharply from the old peak in March 022. The specific number according to this statistics site is from 188 billion to 153 billion USD.

In terms of stablecoins alone, Tether is still the leader in terms of market capitalization.

Tether (USDT)

As the graph from Coingecko above, we can easily see the general trend of Tether that is reducing the supply. This is understandable as after many market shocks and continuous FUDs on USDT, we continuously see large order sizes redeem from USDT, out of the market and to traditional assets.

In contrast, USDC’s capitalization is expanding rapidly and is showing signs of approaching the number from Tether.

Accordingly, the capitalization of other stablecoins is generally stable and does not show a clear trend.

In addition to the declines in market capitalization mentioned above, from my personal perspective, one of the notable changes of Tether is the project’s commitment to reduce the rate of Commercial Paper. gradually to 0.

> See more: Many investment funds are said to be shorting USDT, Tether reduces the percentage of paper holdings

With this change, the risk from unsecured loans of commercial paper will be reduced. Besides, Tether also plans to expand into the British pound market, but to me this is a normal market expansion step of the project and its impact is not too great.

USD Coin (USDC)

USDC is the most notable name, and also the name that has been FUD as much as Tether in recent times.

On April 12, while UST was storming, USDC announced to raise $ 400 million with the participation of many famous names from the traditional market such as BlackRock or Fidelity. The involvement of many traditional financial institutions also entails a lot of FUD in terms of USDC transparency.

In the face of many rumors, CEO Jeremy Allaire has corrected the collateral and safety of USDC.

It is worth noting that USDC’s collateral is gradually shifting to short-term US bonds. In the latest report, it can be seen that Circle’s longest-term bond is only September 2022. This will help Circle reduce unnecessary liquidity risks for USDC.

Like Tether, Circle also tends to develop into other fiat currencies, such as the European EUR.

Another real-world asset-backed stablecoin is BUSD, but since this Binance coin doesn’t have too many updates, I’ll go through it for a while. Those of you who are interested in the collateral assets of these stablecoins can take a look at the summary below!

Dai (DAI)

Because of its nature as a collateral-backed stablecoin, DAI experienced a lot of supply loss when the market crashed. However, with the recent rally of ETH, the capitalization of DAI has returned to the region of $6.8-7 billion.

One point worth noting is that DAI is looking to launch more operations related to real world assets (RWA). This move is because MakerDAO lost some revenue because of DAI’s supply shortage, so the DAO organization wants to find other sources of revenue.

Frax (FRAX)

Frax received a lot of criticism when it let the Collateral Ratio (CR) increase (~90%). This means 1 FRAX is backed by 0.9 USDC and the rest is FXS governance token. This growing trend will cause FRAX to be controversial because of its heavy dependence on USDC, along with application limitations for the native token, FXS.

A recent positive point of Frax is the proposal to implement FraxBP (Frax Base Pool) with 2 tokens, FRAX-USDC. By growing the pool around FraxBP, Frax hopes to revive the purpose of the previous 4Pool (which died after the UST disaster).

USN

USN is an algorithmic stablecoin with a mechanism quite similar to UST, but with a few technical changes. To learn more about the differences, you can read in the article below:

> See more: What is USN stablecoin? Is this an effective lever for the Near ecosystem?

However, the past month has witnessed a lot of not-so-positive information for USN.

The first is that this stablecoin discontinued the mint-redeem feature between USN and NEAR. The implication of this move may be to reduce the negative impact of USN on NEAR in the same way that UST did with LUNA. However, the suspension of this feature also means that the USN will be squeezed and the potential limit for expansion will be limited in the near future.

During the suspension of the above feature, USN also discovered a vulnerability in the contract, causing the total stablecoin supply to increase abnormally. However, this vulnerability was discovered and quickly handled by the team.

Projects are expected to launch soon

HOUSE

GHO is probably the most interesting keyword in recent times, especially with the stablecoin market segment. This is a stablecoin backed by crypto-assets, which is roughly the same as DAI. However, as of the time of writing, This is just the initial proposal from Aave – the lending behind the GHO development plan.

>> See more: Stablecoin GHO – Aave’s ‘Walk to Survive’ During a Recession?

Explaining this direction, I personally think that this is a new source of revenue for Aave, as all fees collected from borrowing this stablecoin will go directly to the DAO’s treasury. In addition, the fact that stkAave holders have voting rights to regulate GHO’s parameters will be a new use case for the Aave governance token.

Curve

Curve Finance (the leading stableswap DEX on Ethereum) is the next name to announce its ambition to deploy stablecoins. Currently, this project has not revealed too much information, but the general model is that this will be an over-collateralized stablecoin similar to DAI.

> See more: Curve Finance (CRV) about to release stablecoin?

In addition, another notable project, CHK (C98), also hinted at its intention to make a stablecoin for the cross-chain value transfer function.

A few bullet points

From the above synthesis, I personally draw a few conclusions. Note, these are my personal views and should not be considered investment advice.

The first point I personally noticed is the projects Traditional stablecoins prioritize safety for the time being, with the consolidation of the collateral structure. On the contrary, about newer forms of stablecoinsmaybe because of the spirit of “innovation startup”, they are somewhat bolder, bolder During this time, with many improvements to have sustained revenue through the downtrend season.

The next point that is easy to see is that most projects (including from the Layer-1 ecosystem to lending and DEX projects) want to build their own stablecoin. Like the title of the article, I believe that if a project to build this stablecoin tool is strong enough, it can become an “economic moat” to protect both cash flow and value from flowing out of the project. However, the common feature of these stablecoins will be similar to a leverage tool for the ecosystem, and at the same time attract more money for the governance token, instead of being considered as a tool to shelter when the market is not active. fluctuating field.

Thereforethe current bear market is not a place for collateral stablecoins and Not even the land for algorithmic stablecoins. For those of you who want to preserve capital, you can consider choosing to store and send interest with traditional stablecoins.

The next bullet point is the portfolio ratio between stablecoins and cryptos. In my opinion, should maintain stablecoin ratio from 30 -> 70% (depending on individual perspective). This not only helps you reduce the risk of volatility from the crypto part, but also helps us not to lose the opportunity in the next uptrend season, and is also a way to hedge against the current high inflation problem.

Finally, as I shared in the DeFi Discussion podcast, because at this stage the market is volatile, the demand for stablecoins will increase, so you should consider a diverse portfolio of stablecoins, not only from currencies, platforms. deposit platforms, but also blockchain. This will reduce the risk a lot compared to a strategy of focusing on 1 coin or a certain platform.

The above is my personal synthesis, hope it is useful for you. And more importantly, I hope the article will help you have the right perspective for yourself to survive through this “uncomfortable” segment of the market!

Note: All of the above content is personal, informational and should NOT be considered investment advice!

Synthetic CHK

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