Apart from centralized stablecoins and algorithmic stablecoins, is there a third kind of stablecoin?

Editor's Note: This article comes fromEditor's Note: This article comes fromXiaokai Night Talk (ID: fintechmiao)

With the fluctuation of cryptocurrency market prices and the global spread of the new crown epidemic, in the past week or so, Tether has issued a total of 4 additional USDT transactions, each with a total value of 120 million US dollars, totaling 480 million US dollars. In the past month, Tether has issued nearly 700 million U.S. dollars, and its total market value has increased by 22%.

Compared with the impossible triangle theory in the field of public chains, we can also summarize an impossible triangle in the field of stablecoins.

Existing stablecoin models can basically be divided into centralized collateralization of legal currency assets (including credit) and decentralized over-collateralization of native encrypted assets (through algorithms). With the proposal and development of Facebook Libra, alliance-type stablecoins supported by more traditional financial/commercial entities may be vigorously developed.

The design concept of fiat asset-backed stablecoins represented by USDT issued by Tether, USDC issued by Circle, and TUSD issued by TrustToken is similar to the relationship between the US dollar and gold in the Bretton Woods system. The user exchanges the stable currency with the stable currency issuer at a ratio of 1:1. The stable currency issuer opens a bank account and relies on corporate credit or a centralized custody institution to host the user's legal currency pool. The structure can be regarded as a digital bank asset certificate. For such a centralized stablecoin, the credit risk of the issuer has a great influence on the value of the actual underlying asset. Such stablecoins issued under different regulations in different districts will obtain different liquidity capabilities due to different degrees of strict regulation, but at the same time, they will also bear different volatility risks.

• Compared with centralized stablecoins, decentralized stablecoins based on smart contract over-collateralization represented by Dai issued by MakerDao can solve some of the above problems. Through a series of pre-agreed rules (usually written into smart contracts), the following different roles are effectively integrated together and rely on free market arbitrage to realize the decentralized stablecoin model:

• Governance organization The governance organization determines the liquidation threshold, guarantee ratio and handling fee, and is responsible for adjusting parameters to maintain currency price stability.

• Oracles Stablecoin issuers need oracles to provide real-time price information of mortgage assets and decide when to liquidate. Stablecoin issuers also need real-time stablecoin market prices to determine whether the currency price is unanchored.

• Price stabilizers Stabilizers are driven by economic incentives and participate in debt and collateral auctions when liquidating collateral. Another function of the stabilizer is to stabilize the currency price. When the market price and the anchor price are out of anchor, the stabilizer makes the market price converge with the anchor price by buying or selling stable coins.

For decentralized stablecoins, although they can solve the defects of some centralized stablecoins, they also have their own problems. The liquidity problem of the underlying assets may cause the entire economic system to collapse in an instant. A transaction order with 0 quotes appeared in MakerDao some time ago (previouslyarticlearticle

mentioned in ), is a very good example.

As the CTO of Bitfinex and Tether, Paolo Ardoino mentioned similar views in an interview with Coindesk before.

"You can't make an algorithmic stablecoin depend only on the encrypted asset itself," because encrypted assets are too volatile, and it may disappear at any time.

• Based on the incident of MakerDao, it actually provides a lot of things to learn for the whole industry. The author also contacted Pan Chao, the head of MakerDao China, to inquire about the official reply. Through the handling of the foundation, I think we can learn the following:
  

• A diversified portfolio of collateralized assets will reduce the impact of black swan events on the system. The MakerDao Foundation believes it is critical to prioritize real-world assets and centralized crypto assets as collateral to provide substantial diversification benefits to the system.

• Governance processes must remain clear and structured, yet be generic enough to respond to changing market needs.

• The aftermath of the Ethereum price crash demonstrated some of the limitations of the Keeper ecosystem. In the future, a better Keeper ecological architecture is needed to make the whole system more benign.

The MakerDAO system increases risk management from Vault holders, participation and decision-making from Maker Governance, and Keeper increases participation and creates new sources of liquidity from Dai holders. Although the black swan event has affected the operation of the system, these valuable experiences will promote the development of the entire ecology.Therefore, some models that mix existing fiat currency centralized mortgage stablecoins and decentralized algorithm over-collateralized encrypted asset stablecoins may be an interesting direction for the development of stablecoins. Projects in this field, from the 2019 Facebook Libra () to the Celo project separated from the Libra Alliance, and the Lightnet (Velo) project I am currently working on are all worthy of attention.

Zero interest rates means that almost all assets will be lower, because the positive effect of rate cuts is no longer there. At the same time, this means that the interest rate stimulus tools (such as interest rate cuts, etc.) of the central banks of almost all reserve countries will be invalid. With prices of commodities such as oil falling in tandem, a weakening economy can lead to deflation, which makes it harder for real assets to circulate efficiently.

In order to save the impact of the epidemic on the economy, large-scale fiscal stimulus and monetary policy are needed. However, at least in several major Western countries such as the United States, these fiscal adjustments have not been implemented. Sometimes the greatest risk may come from the mishandling of officials making decisions within the government, especially when such decisions are not based solely on professional judgment but on political agendas.

• Team Trump has opted for a "whatever it takes" model to try out the near-term economy, with the following measures:

• $3 billion for research and development of vaccines, test kits and other treatments

• $2.2 billion for the Centers for Disease Control and Prevention (CDC) to contain the outbreak
  

• Allocates $1.2 billion to the State Department to help curb the spread of the virus overseas

• $1 billion for medical supplies, health care readiness and community centers

• Authorizes $1 billion to the Small Business Administration (SBA) to subsidize SME loans

• Allocates $500 million for Medicare providers to provide telehealth services

$300 million to ensure vaccines are available to individuals at little or no cost

However, although there are many stimulus policies, none of them seem to be put where they are needed. In fact, for the real economy affected by the epidemic, the greatest help may be needed in specific areas to avoid debt/economic problems from spreading. So far, industries that may go bankrupt due to the shock lack substantial debt support (except for SBA-subsidized loans, which appear to be small). Perhaps the best approach is for fiscal policymakers to guarantee the safety of new lending by banks, but Trump's team has chosen not to do so.

The transition to the US dollars put in the market (especially if they are not placed in the correct field) will greatly affect the inflation level in the United States. The price of epidemic prevention materials will be pushed up, followed by labor costs, which will eventually affect the overall credit system. This is the same as Tether, which is currently issuing a large amount of USDT. In the context of the sharp drop in encrypted assets on March 13 this year, due to the shortage of USDT liquidity, Tether frantically issued USDT worth about 700 million U.S. dollars in the following month. If the transaction volume is stable after the halving of Bitcoin mining after the epidemic is over, then the newly added USDT at this time will have an impact on the price of stable coins in the entire market. There is a saying that Tether was forced to issue a large increase in order to avoid a large number of acceptance of USDT to US dollars in the current environment. At the same time, they knew that this additional issue would bring huge troubles in the future. This statement is very similar to the current decision-making process of the Trump team. Although we know that the current epidemic policy may have a significant impact on the economy, we still have to use such a method of breaking the boat because of the appeal of the election (in fact, the multiple meltdowns per share have proved the ineffectiveness of this regulation ).

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