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How does Tether USDT Maintain It’s Peg?
This article is for those who wonder how Tether, or USDT as it is known, one of the first stablecoins we all know in the Web3 community, always remains at a 1:1 ratio! How is Tether or USDT Stability Achieved? TL:DR; If you are wondering: Tether's stability is based on the implementation of various financial strategies and mechanisms (such as reserve support, supply-demand and arbitrage balance). Backed by Reserves: Tether announced that it has reserves behind each USDT at a one-to-one r...
Aera, Arbitrum Treasury Management and More..
Aera While writing this article, I experienced the comments coming to the proposal in Arbitrum DAO as if I were witnessing a parliamentary fight. Did I internalize it too much? The reason why the article took so long to come out was actually the tabs that were open for days and read repeatedly, not being able to decide where and with which topic to start, finally drawing an outline and trying to push the tabs to disappear again in half a day as a deadline, finally giving up and wanting to foc...
How does Tether USDT Maintain It’s Peg?
This article is for those who wonder how Tether, or USDT as it is known, one of the first stablecoins we all know in the Web3 community, always remains at a 1:1 ratio! How is Tether or USDT Stability Achieved? TL:DR; If you are wondering: Tether's stability is based on the implementation of various financial strategies and mechanisms (such as reserve support, supply-demand and arbitrage balance). Backed by Reserves: Tether announced that it has reserves behind each USDT at a one-to-one r...
Aera, Arbitrum Treasury Management and More..
Aera While writing this article, I experienced the comments coming to the proposal in Arbitrum DAO as if I were witnessing a parliamentary fight. Did I internalize it too much? The reason why the article took so long to come out was actually the tabs that were open for days and read repeatedly, not being able to decide where and with which topic to start, finally drawing an outline and trying to push the tabs to disappear again in half a day as a deadline, finally giving up and wanting to foc...
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>> and a quick intro to USDtb
Most of us are new to the blockchain industry and have only spent a short time trying to understand it. This limited experience may mean we've overlooked a significant, long-term value accrual tool that has recently gained traction: stablecoin yields.
After discussing stablecoins, I decided to prepare a write-up explaining yield-bearing stablecoins, which are also the type of stablecoins I’m working on.
A yield-bearing stablecoin is a type of stablecoin that offers its holders passive income (yield) while maintaining a stable value. This yield is achieved through the reserve-backing system that supports the coin. The annual percentage yield (APY) is displayed as a percentage, representing how much profit you can earn annually.
Traditional fiat currencies generate passive income through fixed deposits or interest on government debt. With yield-bearing stablecoins, investors can choose the source of their stablecoin yield. This feature represents a groundbreaking innovation in stablecoins and offers the opportunity to include other digital assets as part of the backing.
DeFi Native Yield refers to the earnings or interest generated within the decentralized finance (DeFi) ecosystem through the supply-demand dynamics of various crypto assets. DeFi, operating on blockchain-based infrastructure, eliminates intermediaries like banks, enabling direct financial interactions between individuals. This approach expands access to financial services, allowing anyone with an internet connection to lend or borrow crypto assets and earn income from them.
Lending : You can earn passive income by depositing assets like DAI (or SKY), Ethereum, or Bitcoin into platforms like MakerDAO (now called Sky), Aave, and Compound. These platforms pool your assets and lend them to others seeking credit.
Borrowing : To borrow, you need to offer your crypto assets as collateral on the platform. However, due to the volatile nature of crypto markets, these loans may have higher interest rates than traditional bank loans.
Earning Interest : The interest paid by borrowers is distributed among users providing liquidity to the pools. This allows your investments to generate regular income instead of remaining idle.
Platforms like Uniswap and SushiSwap facilitate trades by providing liquidity for users looking to buy or sell. You can provide liquidity to trading pairs such as ETH/USDT and earn transaction fees as income. This is another way to grow your investments.
In traditional staking, assets are locked for a set period and cannot be moved. In liquid staking, however, users receive liquid staking tokens representing their locked assets.
Depositing Assets : Users deposit their crypto assets into a liquid staking protocol, which stakes them on their behalf.
Generating Liquid Staking Tokens : In return for their staked assets, users receive liquid staking tokens (e.g., mSOL for Solana). These tokens enable users to transact or use their assets in other DeFi protocols without un-staking them.
Earning Rewards : Over time, staked assets accrue staking rewards. These rewards are reflected as an increase in the market value or total quantity of liquid staking tokens held by users, further growing their investments.
Liquid staking tokens can be used to earn yield and maintain the stablecoin’s value. As your staked assets generate rewards, the value of these tokens increases, allowing you to earn income without locking your assets. Additionally, these tokens can be utilized in DeFi applications, such as adding liquidity to pools or using them as collateral for loans. Some protocols even employ these tokens to enhance the stability of stablecoins.
Ethena Finance offers a stablecoin solution that provides price stability without relying on banks or fiat reserves. It supports this system with an Ethereum-based financial instrument called "Internet Bond" and both provides profit and maintains price stability. The stablecoin offered by Ethena is an asset that is pegged to USDe, the dollar, and provides profit by staking Ethereum and Bitcoin. This mechanism works with the delta-hedging method.
What is Delta-Hedging? Delta is a term that measures how sensitive the value of a derivative product is to changes in the price of the underlying asset:
>> Positive Delta: If the delta of the derivative product is +1, the value of this product increases by $1 when the asset price increases by $1.
>>Negative Delta: A derivative product with a delta of -1 loses value as the asset price increases.
How Does Delta-Neutral Work?
A delta-neutral portfolio is a portfolio with a total delta of zero. This means that the portfolio is not affected by price changes in the underlying asset.
Example:
Ethena issues a stablecoin called USDe, which is backed by 1 ETH. In this case, the delta of USDe is +1, meaning that as the price of ETH changes, the value of USDe also changes.
>>To achieve a delta-neutral balance, Ethena takes a short position worth 1 ETH. The delta of this position is -1.
>>The positive delta (+1) and the negative delta (-1) cancel each other out, so the net delta of the portfolio is zero.
As a result, the dollar value of USDe remains constant whether the price of ETH increases or decreases. The gains from the increase in the price of ETH are offset by the losses from the short position, and vice versa. This method maintains stability by preserving the value of the stablecoin.
>< As of writing, Ethena Labs announced today the next generation stablecoin: USDtb
USDtb Launch
Ethena Labs has launched USDtb, a new stablecoin backed by BlackRock’s BUIDL fund. USDtb invests its reserves through BlackRock’s USD Institutional Digital Liquidity Fund (BUIDL) in partnership with Securitize, a leader in tokenization of real-world assets.
Securitize is one of the leading platforms for tokenization of real-world assets. By partnering with leading asset managers, it provides investors with investment opportunities that offer lower minimum investment amounts, shorter lock-up periods, and increased liquidity options. Securitize enables private companies to raise capital and provide liquidity from investors, providing greater access to alternative investments.
General features of USDTtb:
90% of reserves are held in BlackRock's BUIDL fund
Similar structure to traditional stablecoins such as USDC and USDT
Free transfer opportunity
Usage on different blockchains thanks to LayerZero technology Security and Audit: The security of the system has been confirmed by leading auditing companies such as Pashov, Quantstamp and Cyfrin. It has also been subject to a comprehensive audit by the Code4rena community.
Partners:
Custody Services: Copper, Zodia, Komainu, Coinbase Web3 Wallet
Liquidity Providers: Jump, Cumberland, Wintermute, Amber, GSR, SCB Limited
This new product is independent of USDe and offers investors a different risk profile. In line with the transparency principle, a platform has been introduced where all reserve assets can be viewed.
>>Final Words
Keeping 90% of the reserves in BlackRock's BUIDL fund can be considered a strategic move in terms of both providing access to a strong liquidity source and increasing institutional trust. Using a fund from a world-renowned financial institution like BlackRock shows that the stablecoin has a solid foundation in reserve management and can increase investor confidence. However, it also carries a significant centralization risk.
Using LayerZero technology allows stablecoins like USDtb to be easily portable and usable on different blockchains. This increases interoperability in the DeFi ecosystem, significantly improving the user experience. Access across chains allows USDtb to reach a wider user base and increase its liquidity. I think seeing LayerZero-powered OFT on PayPal USD (PYUSD) again also shows that trust in LayerZero is increasing.
LayerZero OFT: Omnichain Fungible Token (OFT) is a standard for fungible tokens that can be transferred between multiple blockchains by "wrapping" assets, without the use of middle chains or liquidity pools.
references: https://mirror.xyz/0xF99d0E4E3435cc9C9868D1C6274DfaB3e2721341/LgHNQeP2q2R91yPlhBuLG3ZkKX6golgTdA2TYOviBMM
https://docs.layerzero.network/v2/home/token-standards/oft-standard
>> and a quick intro to USDtb
Most of us are new to the blockchain industry and have only spent a short time trying to understand it. This limited experience may mean we've overlooked a significant, long-term value accrual tool that has recently gained traction: stablecoin yields.
After discussing stablecoins, I decided to prepare a write-up explaining yield-bearing stablecoins, which are also the type of stablecoins I’m working on.
A yield-bearing stablecoin is a type of stablecoin that offers its holders passive income (yield) while maintaining a stable value. This yield is achieved through the reserve-backing system that supports the coin. The annual percentage yield (APY) is displayed as a percentage, representing how much profit you can earn annually.
Traditional fiat currencies generate passive income through fixed deposits or interest on government debt. With yield-bearing stablecoins, investors can choose the source of their stablecoin yield. This feature represents a groundbreaking innovation in stablecoins and offers the opportunity to include other digital assets as part of the backing.
DeFi Native Yield refers to the earnings or interest generated within the decentralized finance (DeFi) ecosystem through the supply-demand dynamics of various crypto assets. DeFi, operating on blockchain-based infrastructure, eliminates intermediaries like banks, enabling direct financial interactions between individuals. This approach expands access to financial services, allowing anyone with an internet connection to lend or borrow crypto assets and earn income from them.
Lending : You can earn passive income by depositing assets like DAI (or SKY), Ethereum, or Bitcoin into platforms like MakerDAO (now called Sky), Aave, and Compound. These platforms pool your assets and lend them to others seeking credit.
Borrowing : To borrow, you need to offer your crypto assets as collateral on the platform. However, due to the volatile nature of crypto markets, these loans may have higher interest rates than traditional bank loans.
Earning Interest : The interest paid by borrowers is distributed among users providing liquidity to the pools. This allows your investments to generate regular income instead of remaining idle.
Platforms like Uniswap and SushiSwap facilitate trades by providing liquidity for users looking to buy or sell. You can provide liquidity to trading pairs such as ETH/USDT and earn transaction fees as income. This is another way to grow your investments.
In traditional staking, assets are locked for a set period and cannot be moved. In liquid staking, however, users receive liquid staking tokens representing their locked assets.
Depositing Assets : Users deposit their crypto assets into a liquid staking protocol, which stakes them on their behalf.
Generating Liquid Staking Tokens : In return for their staked assets, users receive liquid staking tokens (e.g., mSOL for Solana). These tokens enable users to transact or use their assets in other DeFi protocols without un-staking them.
Earning Rewards : Over time, staked assets accrue staking rewards. These rewards are reflected as an increase in the market value or total quantity of liquid staking tokens held by users, further growing their investments.
Liquid staking tokens can be used to earn yield and maintain the stablecoin’s value. As your staked assets generate rewards, the value of these tokens increases, allowing you to earn income without locking your assets. Additionally, these tokens can be utilized in DeFi applications, such as adding liquidity to pools or using them as collateral for loans. Some protocols even employ these tokens to enhance the stability of stablecoins.
Ethena Finance offers a stablecoin solution that provides price stability without relying on banks or fiat reserves. It supports this system with an Ethereum-based financial instrument called "Internet Bond" and both provides profit and maintains price stability. The stablecoin offered by Ethena is an asset that is pegged to USDe, the dollar, and provides profit by staking Ethereum and Bitcoin. This mechanism works with the delta-hedging method.
What is Delta-Hedging? Delta is a term that measures how sensitive the value of a derivative product is to changes in the price of the underlying asset:
>> Positive Delta: If the delta of the derivative product is +1, the value of this product increases by $1 when the asset price increases by $1.
>>Negative Delta: A derivative product with a delta of -1 loses value as the asset price increases.
How Does Delta-Neutral Work?
A delta-neutral portfolio is a portfolio with a total delta of zero. This means that the portfolio is not affected by price changes in the underlying asset.
Example:
Ethena issues a stablecoin called USDe, which is backed by 1 ETH. In this case, the delta of USDe is +1, meaning that as the price of ETH changes, the value of USDe also changes.
>>To achieve a delta-neutral balance, Ethena takes a short position worth 1 ETH. The delta of this position is -1.
>>The positive delta (+1) and the negative delta (-1) cancel each other out, so the net delta of the portfolio is zero.
As a result, the dollar value of USDe remains constant whether the price of ETH increases or decreases. The gains from the increase in the price of ETH are offset by the losses from the short position, and vice versa. This method maintains stability by preserving the value of the stablecoin.
>< As of writing, Ethena Labs announced today the next generation stablecoin: USDtb
USDtb Launch
Ethena Labs has launched USDtb, a new stablecoin backed by BlackRock’s BUIDL fund. USDtb invests its reserves through BlackRock’s USD Institutional Digital Liquidity Fund (BUIDL) in partnership with Securitize, a leader in tokenization of real-world assets.
Securitize is one of the leading platforms for tokenization of real-world assets. By partnering with leading asset managers, it provides investors with investment opportunities that offer lower minimum investment amounts, shorter lock-up periods, and increased liquidity options. Securitize enables private companies to raise capital and provide liquidity from investors, providing greater access to alternative investments.
General features of USDTtb:
90% of reserves are held in BlackRock's BUIDL fund
Similar structure to traditional stablecoins such as USDC and USDT
Free transfer opportunity
Usage on different blockchains thanks to LayerZero technology Security and Audit: The security of the system has been confirmed by leading auditing companies such as Pashov, Quantstamp and Cyfrin. It has also been subject to a comprehensive audit by the Code4rena community.
Partners:
Custody Services: Copper, Zodia, Komainu, Coinbase Web3 Wallet
Liquidity Providers: Jump, Cumberland, Wintermute, Amber, GSR, SCB Limited
This new product is independent of USDe and offers investors a different risk profile. In line with the transparency principle, a platform has been introduced where all reserve assets can be viewed.
>>Final Words
Keeping 90% of the reserves in BlackRock's BUIDL fund can be considered a strategic move in terms of both providing access to a strong liquidity source and increasing institutional trust. Using a fund from a world-renowned financial institution like BlackRock shows that the stablecoin has a solid foundation in reserve management and can increase investor confidence. However, it also carries a significant centralization risk.
Using LayerZero technology allows stablecoins like USDtb to be easily portable and usable on different blockchains. This increases interoperability in the DeFi ecosystem, significantly improving the user experience. Access across chains allows USDtb to reach a wider user base and increase its liquidity. I think seeing LayerZero-powered OFT on PayPal USD (PYUSD) again also shows that trust in LayerZero is increasing.
LayerZero OFT: Omnichain Fungible Token (OFT) is a standard for fungible tokens that can be transferred between multiple blockchains by "wrapping" assets, without the use of middle chains or liquidity pools.
references: https://mirror.xyz/0xF99d0E4E3435cc9C9868D1C6274DfaB3e2721341/LgHNQeP2q2R91yPlhBuLG3ZkKX6golgTdA2TYOviBMM
https://docs.layerzero.network/v2/home/token-standards/oft-standard
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