Maker, ForTube, Lien three stable currency models, which one can achieve more stability?
I wrote an article on stablecoins in early June, comparing the stablecoin models of Maker, Kava and Acala projects. Click for details"The Three Ecological Stablecoins of Ethereum, Polkadot, and Cosmos Started Up! "。
Up to now, Maker's DAI is still the leader of the decentralized stable currency, Kava's USDX has not yet been launched on the exchange, and Acala's aUSD is still waiting for the Polkadot mainnet.
However, some new stable currency models have also appeared in the market. Today, we will compare these stable currency models.
1. DAI type stable currency
DAI in the Maker system is currently the largest decentralized stablecoin with a wide range of application scenarios and a broad consensus.
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Source: DeBank.com
DAI-type stablecoins use the over-collateralization model, and different assets have different collateralization ratios. When the price of mortgage assets falls, users need to replenish collateral or repay the loaned DAI. If the collateral is not replenished or the debt is not repaid in time, the collateral will be liquidated, and the liquidation penalty is generally between a few percent and more than ten percent, and different platforms have different settings.
Maker runs on Ethereum and only supports asset pledges on Ethereum. However, due to the prevalence of Bitcoin-anchored coins, Maker also supports the use of Bitcoin-anchored coins for pledge, which is equivalent to realizing cross-chain.
Kava, which is similar to Maker, is based on Cosmos and focuses on cross-chain. Currently, the mortgage assets only support BNB. After that, the new version of the main network will support cross-chain mortgages of more assets such as Bitcoin.
For stablecoins, maintaining price stability should be done. To maintain price stability, a smooth, low-friction issuance and recovery mechanism is very important, which is an important factor in maintaining currency price stability. The comparison of the three types of stablecoins today will focus on this aspect.
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Source: coinmarketcap.com
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Source: coinmarketcap.com
In contrast, the issuance friction of DAI is relatively large. Not to mention the gas cost that exists in Ethereum, the minting of DAI also requires a stability fee, which undoubtedly increases the friction. (The stability fee can be canceled by voting, but it takes time from voting to cancellation, and the time during this period is also a kind of friction).
The following is an example to illustrate the friction cost of DAI issuance.
Assuming that DAI now has a 10% premium, users see an opportunity and want to take arbitrage, thereby flattening the premium. Assuming that $10,000 is used to mint DAI with a mortgage rate of 200%, $5,000 of DAI is minted. (DAI requires over-collateralization, the minimum collateralization rate is 150%, if it is lower than 150%, it may be liquidated, and the liquidation needs to pay a liquidation penalty of 13%. So it is very good to be able to mint DAI with a 200% collateralization rate).
Then use DAI to exchange for USD 5,500 USDT in the market, then use USD 5,500 to mint USD 2,750 DAI, exchange for more USDT in the market, and then carry out circular arbitrage.
Obviously, you will find that there are fewer and fewer funds that can participate in arbitrage. At the same time, if the premium does not recover for a long time, the minted DAI will continue to generate stability fees. If DAI maintains a premium for a long time, and it is impossible to buy back DAI at a low price to repay debts, the funds cannot be withdrawn, and the opportunity cost of capital occupation cannot be ignored.
Therefore, we can see that DAI cannot achieve smooth and low-friction issuance. When the market urgently needs liquidity, it cannot quickly expand the supply and calm the market premium.
2. The improved version of DAI QIAN
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Source: for.tube
From the blockchain browser, it can be seen that the number of QIAN currency holding addresses is very small, and there are no usage scenarios. However, it is understood that Fortube will distribute its governance tokens through liquidity mining on Curve, and QIAN must be used for mining. Fortube wants to increase the number of currency holding addresses of QIAN through liquidity mining.
QIAN is also based on the over-collateralization model, but the difference is that there is no stability fee for minting QIAN, and even when the demand for QIAN is strong, minters will be motivated to increase their supply.
One of the sources of incentives for QIAN is the income generated by using accumulated assets to provide lightning loan services. If the incentives are insufficient, the service fees for external development support, and income from ecological project equity will be injected to provide incentives.
The core here is that it does not rely on QIAN to make money—so there is no stability fee in the QIAN system, but instead focuses on how to expand the usage scenarios of QIAN, and wants to build QIAN into a public infrastructure.
When the demand for QIAN rises and generates a premium, it will stimulate more funds to enter through incentives, increase supply, and there is no stability fee, which undoubtedly reduces the friction cost on the supply side.
But the same problem as DAI is that arbitrage funds also have to face problems such as low capital utilization rate and the opportunity cost of funds when the premium is maintained for a long time, and it is also impossible to form a virtuous circular arbitrage.
In addition, QIAN issued governance tokens, but because the QIAN system does not have a stability fee, the current governance tokens only have governance value and cannot capture cash flow. However, governance tokens also have to assume a similar role as MKR, which may affect users' willingness to hold coins.
3. Lien, a new stable currency issuance model
Lien is a brand-new stablecoin issuance model.
source:
source:https://lien.finance/pdf/LienFairSwapWP_v1.pdf
source:
source:https://defiprime.com/lien
From the above brief introduction, we can find that the issuance of iDOL depends on how many people want to hold LBT, and its issuance scale is limited by the size of the LBT market. In fact, LBT is an ETH call option, so it can be speculated that when the ETH bullish atmosphere is strong, the issuance scale of iDOL is relatively easy to expand, and when the ETH bearish atmosphere is strong, its issuance may shrink.
source:
source:https://app.lien.finance
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source:https://app.lien.finance
source:
source:https://app.lien.finance
But this situation is actually a preview of the future. When the market has a strong bearish sentiment, LBT has a negative premium, and this situation will occur again. And it is impossible to restore the premium through new generation of LBT and SBT, and it can only be restored through spontaneous transactions in the market. So this is also the reason why the supply of iDOL will be affected when the bearish atmosphere of ETH is strong, because when no one is willing to generate LBT, no new iDOL will be generated (ETH cannot only generate SBT).
But it’s different when the atmosphere of ETH is bullish. LBT is at a premium. If the demand for iDOL rises at this time, resulting in a high premium, by casting LBT and SBT, you will be able to obtain more iDOL than the value of ETH itself. iDOL supply The quantity will be relatively sufficient.
It should be noted that when the black swan ETH price falls below the set minimum price, the stability of SBT will no longer exist, which will cause iDOL to break the anchor.
Then you may ask, why don't you go to the exchange to open contracts and open leverage when you are bullish on ETH? This has to take into account the difference between options and futures. Options have their own huge market. A simple benefit is that options have no liquidation, no margin, and no counterparty risk.
To sum up, Lien is a stable currency issuance protocol that does not require governance. This is a great innovation, and the supply model is completely different from DAI, QIAN, etc. The total amount is limited by the size of the options market, and the willingness to mint coins on the supply side is seriously affected by the market. When the market is bearish, the supply may shrink.
Four. Summary
DAI is the largest decentralized stablecoin with a wide range of applications and a strong consensus. It currently has a circulation of nearly 500 million. Many over-collateralized stablecoins in the market are established with reference to DAI and are widely recognized.
However, in the DAI model, the supply friction is relatively large, and it is impossible to make circular arbitrage. When the market demand is strong, the premium cannot be quickly recovered.
QIAN uses the same over-collateralization model as DAI, but innovatively cancels the stability fee, which reduces the issuance cost on the supply side. At the same time, when QIAN has a high premium, it will encourage issuance through incentives and quickly increase supply.
QIAN has less friction on the supply side, which helps to increase supply and smooth out the premium. However, it is also impossible to achieve circular arbitrage. Whether the premium can be quickly leveled off still needs to be verified by the market.
Lien is a new type of stablecoin issuance protocol that does not require governance, but the total amount of stablecoins is limited by the size of its options market, and the supply is greatly affected by the market. When a high premium occurs, it may not be possible to quickly smooth out the premium. But Lien itself is not just a stable currency business, and the value of Lien should not be considered only from the stable currency side.
Disclaimer: This article is the author's independent opinion, and does not represent the position of the Blockchain Institute (public account), nor does it constitute any investment opinion or suggestion.
References:
https://for.tube/qian_whitepaper_zh.pdf
https://lien.finance/pdf/LienFairSwapWP_v1.pdf
https://medium.com/lien-finance/how-we-overcome-the-defects-in-makerdao-part-1-17e6fc9deeed
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Disclaimer: This article is the author's independent opinion, and does not represent the position of the Blockchain Institute (public account), nor does it constitute any investment opinion or suggestion.
