Web3 Lawyer: Centralized USDT has no future. What will be the future of stablecoins?

Author: Mankiw Blockchain

Blockchain, as a collective name for a package of technologies that was born out of Bitcoin, is born with strong financial attributes and liberal spirit to a certain extent. However, people have to bow their heads under the roof. In order to prevent being targeted by mainstream regulatory authorities, most Web3 projects strive to prove that their tokens are utility tokens (Utility Tokens) rather than security tokens (Security Tokens). .

The worries between projects are not the same. In the world of Web3, there is another type of Token that users are afraid of not treating themselves as money, and that is stablecoins. After all, as a payment medium, the most difficult issue is stability (the Russian ruble says you click on me...)

The narrative logic of stablecoins is actually very simple. If I have 1 US dollar in my bank account, I will send 1 coin on the blockchain. The main thing is a stable mood and price. To a certain extent, stablecoins combine the stability of traditional currencies with the decentralization advantages of blockchain technology, becoming a bridge connecting the real world and the world on the chain, and deservedly becoming the gateway for blockchain technology to reach ordinary people's homes. The first batch of large-scale applications.

But as stablecoins such as USDT gradually dominate the market, we suddenly find that the boy who slays the dragon eventually becomes the dragon.

Tether, as the issuer of USDT and the core hub of the global Web3 industry, accounts for more than 65% of the global stablecoin market share and earns tens of billions of dollars in stablecoin business every year. However, it is the most traditional Centralized Web2 commercial company.

The issuance and freezing of USDT completely relies on a centralized issuer, and its information transparency is low, profits are almost irrelevant to users, and governance rights are highly concentrated. No one complains about these three points when it comes to traditional Internet companies. But when it comes to a mainstay company in the Web3 industry, it’s terrible, because it’s not Web3 at all!

You know, the core concepts of Web3 are just a few words: openness, transparency, credibility, and value sharing. These words seem to have nothing to do with Tether, a centralized stablecoin company.

Then the question arises: Can stablecoins, an important application of Web3, be made more Web3-like? Perhaps this is the key to the development of the next generation of stablecoins.

In today’s article, Lawyer Honglin would like to share with you a recent research project to further explore how to achieve an innovative model that combines decentralization and stablecoins. Naturally, the content of this article is for learning and communication only and does not constitute any investment advice.

Stablecoin Usual Project Introduction

Usual is a decentralized legal stablecoin issuance platform that is committed to breaking down the barriers between traditional finance and decentralized finance (DeFi) and connecting traditional finance with decentralized finance (DeFi).

Usual is centered around three core products:

·Commonly used stablecoins : designed for payment, counterparty and collateral use.

·Usual LST (ordinary LST): a product that generates income.

·Usual Governance Token : gives the holder decision-making rights within the agreement.

Usual aggregates tokenized real-world assets (RWA) from well-known institutions such as BlackRock, Ondo, Mountain Protocol, M0 or Hashnote, transforming them into permissionless, on-chain verifiable, composable stablecoins, thereby enhancing traditional non-profit Liquidity of liquid assets and making these assets more accessible to more investors.

More importantly, it redistributes ownership and governance rights through $USUAL tokens, allowing community members to become owners of the platform’s infrastructure, funds, and governance, promoting the integration of the Web3 world with the real world. Through Usual's design, the issuance of stablecoins is not only the digitization of assets, but also a reconstruction of the traditional financial system.

The founder of Usual is Pierre Person, who was born on January 22, 1989. He was a member of the 6th District of the French National Assembly and has long been active in the political arena as an election consultant and political ally of French President Macron. Pierre Person’s political background and understanding of blockchain technology enable him to lead the Usual team with a unique perspective and promote the integration of Web3 with traditional finance. As a member of the French Socialist Party, Pierre participated in important legislative projects such as LGBT health care and cannabis legalization during his tenure, demonstrating his cross-border thinking and innovation capabilities.

In terms of project financing, Usual has attracted the attention and financial support of multiple well-known investment institutions. In April 2024, Usual completed US$7 million in financing, led by IOSG Ventures, with participation from GSR, Mantle, Starkware and other institutions. In November, Usual completed a new round of financing of US$1.5 million, with Comfy Capital and early crypto project investor echo also injecting funds into the project. In December, Usual announced the completion of a transaction hosted by BinanceLabs

and a $10 million Series A round led by Kraken Ventures. These investments not only bring necessary capital support to Usual, but also provide abundant industry resources and strategic guidance for project development.

Features of Usual Project Stablecoin

Unlike traditional centralized stablecoins, Usual's USD0 stablecoin shows unique advantages in stability, transparency, revenue distribution and decentralized governance.

·Selection and transparency of mortgage assets

Unlike traditional stablecoins backed by short-term assets such as cash and commercial paper, USD0 chooses ultra-short-term real-world assets ( RWA ) as collateral, including U.S. Treasury bonds, overnight reverse repurchase bonds, etc. Holders can earn returns by converting USD0 to USD0++ in the form of $USUAL tokens or risk-free USD0. Moreover, the collateral assets of USD0 are transparent and verifiable on the chain , and users can view and verify the status of assets supporting USD0 on the chain at any time. This approach not only increases transparency, but also helps build user trust in the protocol.

·Innovative revenue distribution mechanism

Most of the revenue from traditional stablecoins belongs to the issuer, and users cannot directly benefit from it. The design of USD0 takes into account a more fair and transparent distribution mechanism . 100% of the USD0 revenue will be remitted to the protocol treasury, and 90% of $USUAL tokens will be distributed to community members. Community members include not only users, but also liquidity providers and contributors. Through this design, USD0 ensures that users can share the growth dividends brought by the protocol , rather than concentrating all profits in the hands of the issuer.

What’s more interesting is that users holding USD0 can earn more by converting it to USD0++. This not only enhances users' sense of participation, but also allows users to benefit from the growth process of the protocol, truly realizing the concepts of decentralization and revenue sharing.

In contrast, traditional stablecoins such as USDT have a large amount of U.S. Treasury bonds behind them, but most of their profits belong to Tether , and there is almost no way for ordinary users to participate in the distribution of profits. For example, in the first half of 2024, Tether's net profit reached US$5.2 billion. Almost all the profits belonged to the company, and users did not share this dividend.

·Decentralized governance and transparent management

The decentralized governance of USD0 is one of its highlights. In the Usual protocol, community members are not only users, but can also participate in the governance of the protocol by pledging $USUAL tokens. Users have a certain say in the decision-making of the treasury and the protocol, which means that the issuance and management process of USD0 is not controlled by a centralized organization, but is jointly decided by the community.

The advantages of this kind of decentralized governance are obvious. It ensures that the decision-making of the protocol will not be controlled by a single interested party and can better serve all participants. Traditional stablecoins such as USDT are almost completely controlled by Tether, and the space for users to participate in governance is very limited.

·Unique advantages of risk management

As mentioned earlier, USD0 selects highly liquid and safe government bonds as collateral, which reduces the impact of bank systemic risks compared to commercial bank reserves. The short-term maturity assets used by USD0 can effectively avoid discount liquidation in the event of large-scale redemptions. If the asset has a long maturity, it may be forced to sell at a low price to meet redemptions, but the maturity of short-term assets can reduce this risk.

In addition, all assets are tokenized and put on the chain, and users can verify their liquidity and security at any time. This transparency greatly enhances users’ trust in the protocol. The smart contract automatically executes the issuance and management process of USD0 and ensures its price stability through the arbitrage mechanism. When the market price of USD0 deviates from its anchor value, arbitrageurs can restore its stability by buying and selling USD0. Through these measures, USD0 can minimize price fluctuations and reduce systemic risks in the event of large-scale redemptions.

Conclusion

With the continuous development of the Web3 industry, decentralized finance (DeFi) and cross-border payments have become the most potential application scenarios of blockchain. As an important tool to connect traditional finance and on-chain assets, stablecoins’ decentralized, transparent and fair revenue distribution mechanism will be the key to the future development of stablecoins.

One of the core concepts of Web3 is decentralization and sharing value with users. The Usual project is based on this concept, innovatively combining the advantages of traditional finance with the decentralized spirit of Web3, through a more transparent, fair and decentralized mechanism, creating a new stable currency model. It not only provides users with higher benefits, but also allows more community members to participate in protocol governance and share network value and business dividends.

This model may be the future of the real Web3.0 stable currency.