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Stablecoin Market on RWA

Imbalanced value distribution: Centralized stablecoins tend to privatize profits but socialize potential losses, resulting in uneven distribution of benefits.

Lack of transparency: Centralized stablecoins like Tether and Circle have serious problems with transparency, forcing users to take unnecessary risks. For example, during SVB’s bankruptcy, the market had no way of knowing whether Circle or Tether had any financial exposure to SVB, nor in which banks their reserves were held. Likewise, Tether has been using a portion of its reserves for lending and investing activities. About 6.5% of reserves have been loaned out, about 4% are invested in precious metals and about 2.5% are classified as other investments, according to an audit report issued by the TBO. This mode of operation of Tether makes it vulnerable to bank runs, a liquidity crunch that could become a potential black swan event.

Limited Scalability of Decentralized Stablecoins: Decentralized stablecoins face scaling challenges because they typically require large amounts of over-collateralized assets. As the market demand for stablecoins grows, relying solely on a single crypto asset as collateral may not be able to meet the demand. Additionally, poorly designed algorithmic stablecoins have failed multiple times, exposing risks of undercollateralization and institutional instability.

Popular players:

Ethena: Provides a relatively high APY, as high as 12.2%. The current sUSDe TVL is about 1.7 billion; its market value has increased by 978% since its launch at the beginning of the year. The Delta Hedge strategy employed by Ethena is particularly attractive in bull market environments. Where long positions dominate, funding rates are generally favorable to short holders. This strategy allows Ethena to remain stable while attracting traders looking to hedge against market volatility and profit from positive funding rates during bull markets.

Maker (now Sky): APY 7.7%, the current sDAI TVL is about 1.3 billion; the DAI deposited in DSR exceeds 2 billion, which is 38% of all DAI circulating in the market. Since founder Rune announced in August last year that it will provide up to 8% The yield on deposits has increased by 197% since then, and the market value has stabilized at just over US$5 billion. The collateral TVL is $7.74 billion, and the mortgage ratio is 147%. Maker integrates U.S. Treasuries into its portfolio, diversifying its income streams and enhancing income stability. Integrate staking stETH and use it as collateral to mint DAI. It also removes the 15% slash penalty for staking, promoting stability and aligning holders’ interests with the sustainability of the ecosystem.

DAI’s ability to thrive relies heavily on the huge subsidies Curve holders pay to 3pool, providing a strong moat. As Maker transforms into a more centralized Sky ecosystem, this strategy, although pragmatic, has caused widespread controversy in the community. Many people worry that the shift to USDS will cause Maker to lose its original decentralization advantage and eventually have its share eaten up by more reliable alternatives. It remains to be seen whether its vision of combining U.S. debt and subDAO models to rapidly increase the scale of Sky's ecosystem can be realized in the future.

In contrast, Liquidity has chosen a completely opposite path. Its v2 $BOLD, a fully Ethereum-native stablecoin backed only by ETH (and LST), will attract a lot of collateral as it stands. Will CDP’s insistence on maximum decentralization and elasticity make it a niche product? We expect users to vote with their real money.

The growing popularity of low-volatility assets in the stablecoin space. After the market’s education in the last cycle, everyone has become more conservative and rigorous in controlling the underlying risks of crypto-financial assets, especially in the selection of collateral and risk control measures behind currency issuance. The last cycle saw high volatility and endogenous assets Projects used as collateral, such as most high-risk algorithmic stablecoin projects represented by LUNA, have disappeared.

Because business lines are clear and simple, regulatory costs are more controllable and consistent. Large financial companies are beginning to target the relatively profitable and easy-to-enter stablecoin business. PYUSD launched by Paypal has reached a circulation of 1 billion, and its market value has increased by 155% since it was announced to enter Solana on May 29. The supply of PYUSD on the Solana chain has also increased by nearly 4685%. In the same way, JD.com’s plan to launch a stable currency linked to the Hong Kong dollar is also trying to get a share of the pie while seeking new growth points in digital finance.

Circles are still waiting for more legislative guidance, particularly on reserve reporting and liquidity requirements. Circle has always emphasized transparency and switched from Grant Thornton to Deloitte for audits to boost confidence in its reserves. Tether’s transparency issues have long been controversial. While Tether claims that all of its USDT is backed by equivalent fiat currency reserves, there has been a lack of transparency regarding the specific details and independent audits of its reserves. In 2024, U.S. regulators are pushing for more transparency and compliance requirements, and Tether is expected to be subject to these requirements.