After the collapse of Silicon Valley Bank, how should we view stablecoins?

06/03/2023·1years ago

The narrative of each cycle is different. If the core narrative of the last bull market was DeFi and distributed storage Filecoin.

The possible outbreak points for this round may include: ZK sector; Arb sector; Polygon ecosystem; BTC layer 2; stablecoins; LSD.

In the previous issues, veDAO brought a series of interpretations of the BTC ecosystem to everyone. This time, veDAO will consider this industry from the perspective of stablecoins.

Silicon Valley Bank collapses, USDC decouples

Last weekend, the most surprising news was the collapse of Silicon Valley Bank. For more information about the collapse of Silicon Valley Bank, veDAO Research Institute will present it in another article. This article will focus on the development and format of stablecoins in the era of economic crisis from the perspective of stablecoins.

But first, we need to start with the concept of stablecoins.

Stablecoins are a way of representing cryptocurrencies, whose value is often anchored to mainstream fiat currencies in the real world, and also gives stablecoins value stability that other cryptocurrencies do not have. This stability makes them attractive to investors and traders who want to hedge against the volatility of other cryptocurrencies.

However, these tokens themselves cannot avoid fluctuations. When faced with a huge black swan event, stablecoins will also decouple from the pegged currency, meaning they will deviate from their pegged value.

Currently, there are three common types of stablecoins:

Fiat stablecoins: USDT, USDC, and BUSD are the main ones.
Decentralized stablecoins: mainly DAI.
Algorithmic stablecoins: The classic "black swan" LUNA in 2022 is a typical representative.

Algorithmic stablecoins have always been a new concept that has attracted industry attention, but tokens such as LUNA and UST have not had a long lifecycle, so this article will mainly discuss the models of the first two stablecoins.

According to dune data, fiat stablecoins still dominate the stablecoin race.

As shown in the above figure, USDT+USDC+BUSD has already accounted for 81.4% of the entire stablecoin market. Despite the strong dominance of fiat stablecoins, they have also been subject to real-world interventions in recent years. Just last month, one of the stablecoins, BUSD, was halted by US regulatory agencies for being "defined as a security" and began to review its issuer, Paxos.

However, more serious things are still to come. The collapse of Silicon Valley Bank mentioned earlier has directly triggered a decoupling frenzy between fiat stablecoins and the US dollar, leading to a huge sense of distrust in the stablecoin market.

Circle, the issuer of USDC, announced on March 10 that USDC had decoupled from the US dollar, with about $33 billion of its $40 billion USDC reserves deposited in the now-collapsed Silicon Valley Bank. Affected by the decoupling event, the exchange rate of USDC and the non-decoupled stablecoin USDT once fell below 0.9, dropping to a low of 0.85. In view of the impact of USDC, other stablecoins have also followed suit in decoupling from the US dollar.

Not only that, the decoupling frenzy triggered by USDC has also extended to the decentralized stablecoin field. DAI, a decentralized stablecoin issued based on the Ethereum protocol by MakerDAO, also experienced a short-term decoupling from the US dollar.

Although USDC and DAI quickly restored their exchange rates with the US dollar after a brief decoupling, the resulting market distrust of stablecoins has only intensified. Many users even joked, "Although we have always doubted the true value collateral situation of USDT, it now seems that USDT is Always King."

The market needs new decentralized stablecoins

The old USDC and DAI have decoupled, and the non-decoupled USDT has always failed to prove that its tokens are sufficiently cash-collateralized. While the old stablecoins are facing a crisis of trust, we might as well turn our attention to emerging decentralized stablecoin projects.

HOPE: Backed by BTC and ETH as value support

Basic information:

Official website:

https://hope.money/

Twitter:

https://twitter.com/hope_ecosystem

Introduction: HOPE is a decentralized stablecoin, and its token $HOPE will start at around $0.5 and will fluctuate with the prices of BTC and ETH. The HOPE ecosystem includes four protocols: HopeSwap, HopeLend, HopeConnect, and HopeEcho, providing trading, lending, derivatives, and synthetic asset functions.

Detailed description:

HOPE economic model:
$HOPE: The native pricing token supported by the ecosystem's reserves, will be launched at a discounted price of $0.5 and gradually pegged to the cryptocurrency market's recovery.
$stHOPE: Tokenized representation of $HOPE pledged. Through pledging, users can use applications such as HopeSwap, HopeLend, HopeConnect, and HopeEcho in the ecosystem. In addition, users can obtain $stHOPE by pledging $HOPE and earn $LT rewards by holding $stHOPE.
$LT: The incentive and governance token of the HOPE ecosystem, used to incentivize users to participate in the ecosystem and governance.
veLT: The tokenized representation of $LT locked in voting when exercising governance rights, veLT holders can receive additional $LT rewards and vote on governance proposals, deciding on many key issues including $HOPE currency policy, Treasury policy, and protocol revenue distribution.

HOPE ecosystem:
The HOPE ecosystem will include four main protocols, providing a complete and rich set of applications around $HOPE and $stHOPE, including exchange, lending, margin, and other scenarios, and incentivizing users to participate in ecosystem applications and community governance through $LT.
HopeSwap: An AMM Swap built on Ethereum, serving as the gateway for users to enter the HOPE ecosystem. Users can quickly trade between $HOPE, $stHOPE, $LT, and other assets, or provide liquidity for trading pairs to earn $LT rewards and fee sharing.
HopeLend: A multi-liquidity pool non-custodial lending protocol. Lenders can earn interest by depositing liquidity, while borrowers can provide collateral assets to obtain over-collateralized loans.
HopeConnect: As an industry-first DeFi innovation protocol, it allows users to trade derivatives on top CEX without the need for centralized asset custody.
HopeEcho: Synthetic assets that track the prices of real-world assets (RWA), including stock indices, fixed income instruments, commodities, and foreign exchange, reducing the threshold for accessing TradFi services.
Operating logic:
Phase 1: In the early stages of development, $HOPE will be supported by BTC and ETH and tokens will be minted and burned.

Phases 2 and 3: The reserve pool of $HOPE will add more stablecoins until the funds in the reserve pool reach several times the market value of $HOPE (currently uncertain), and $HOPE will gradually peg from $0.5 to $1 until it becomes a stablecoin.

Angle: Decentralized stablecoin anchored to the euro

Basic information:

Official website:

https://www.angle.money/#/

Twitter:

https://twitter.com/AngleProtocol

Introduction: Angle is a decentralized, capital-efficient, and over-collateralized stablecoin protocol consisting of smart contracts running on open blockchains. Angle's decentralized solution fills the gaps in current methods and fully leverages the strengths of centralized and decentralized protocols, and also has the robustness brought by the over-collateralization design, while maintaining capital efficiency similar to low-collateral designs. Angle went live in November 2022, and as of now, its token $Angle has a market value of about $67 million.

Detailed description:

Angle economic model:
$ANGLE: Total supply of 1 billion, minted by the Angle Governor Multisig.

veANGLE: veANGLE represents "voting custody" ANGLE, the governance token of the Angle protocol. The token economics of ANGLE were upgraded in January 2022, allowing ANGLE to be locked as veANGLE, making it a system of ownership and revenue based on Curve's veCRV and Frax's veFXS mechanism. The key attribute of veANGLE, in addition to being a governance token, is that it is non-transferable and not traded on the open market.
Angle operating logic: Angle allows people to exchange stable assets and collateral assets at a 1:1 ratio: for 1 euro of collateral, you can get 1 stablecoin, and for 1 stablecoin, you can always redeem collateral worth 1 euro.
The protocol involves three groups, common in other DeFi protocols, all of which benefit from Angle:
- Stable seekers and holders (or users) who mint, use, or burn stable assets.
- Hedging agents (HA) can obtain on-chain leverage in the form of perpetual futures in a single transaction and ensure that the protocol is protected from fluctuations in its collateral.
- Standard liquidity providers (SLP), who bring additional collateral to the protocol and automatically earn interest, trading fees, and rewards.
Angle will be able to support many different stablecoins, each with different types of collateral. It will start with stable euros supported by USDC and DAI.

RAI: Vitalik's favorite decentralized stablecoin

Basic information:

Official website:

https://app.reflexer.finance/#/

Twitter:

https://twitter.com/reflexerfinance

Introduction: Reflexer is a platform that issues non-pegged stable assets using cryptocurrency collateral. RAI is the first of its kind and, like the original DAI, is generated only by over-collateralizing ETH and has a local funding rate calculated by the on-chain PI controller to correspond to complex market conditions, driving the market price of RAI to converge with the redemption price.

Detailed description:

The RAI/USD exchange rate is determined by its supply and demand relationship, and the protocol will attempt to stabilize the price of RAI by continuously devaluing or revaluing its value. The supply and demand mechanism operates between SAFE users (users who generate RAI using ETH) and RAI holders.
Compared to other stablecoins on the market, RAI proposes a new concept: a redemption mechanism. RAI uses an on-chain PI controller to set the rate of change of its redemption price, called the redemption rate, expressed as an annualized interest rate. By adjusting the redemption rate, RAI can precisely control the supply of stablecoins in the market, thereby bringing the price of RAI closer to the ideal price set by the system.
RAI's monetary policy consists of four elements:
Redemption price: The token's expected price set in advance by the RAI protocol.
Market price: The actual trading price of RAI in the secondary market.
Redemption rate: RAI depreciation calculation.
- When the market price of RAI is above the redemption price for a period of time, the redemption rate will become negative.
- When the market price of RAI is below the redemption price for a period of time, the redemption rate will become positive.
Global settlement: Closing the protocol, users redeem collateral.
Pros and cons:
Advantages: Not pegged to $1, the protocol can devalue or revalue RAI based on the market price of RAI; the risk of loss is smaller.
Disadvantages: The audience is too narrow, so it has not been favored by the market until now; scarcity of liquidity is also an important reason for the inability to expand the market.

Conclusion:

The above three decentralized stablecoin projects are all emerging or undiscovered potential stablecoin ecosystems in the market. In fact, the narrative based on decentralized stablecoins is already quite prosperous. In addition to the three mentioned above, stablecoin projects such as LUSD, FRAX, KAVA, MIM, and HAY are also worth paying attention to.

After all, although decentralized stablecoins currently have a low market share and are also unable to avoid the impact of real-world black swan events, to some extent, as the global economic environment deteriorates and the world enters a game of stock, black swan events will become more and more common. At this time, stablecoins without coinage rights and threatened by centralization, may not be a good choice.

And decentralized stablecoins, which are still in the early stages of development, have a greater degree of imagination in the narrative.

References:

https://m.mytoken.io/news/428359

https://mp.weixin.qq.com/s/_-bJhDcQwoDKMMY1J3QNJA

https://www.bitpush.news/articles/1817404

https://www.odaily.news/post/5184608

https://medium.com/reflexer-labs/stability-without-pegs-8c6a1cbc7fbd

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