USDT: The Ultimate Winner of DeFi Liquidity Mining
When the entire market is still immersed in the DeFi liquidity mining boom, what many people have not noticed is that USDT is undergoing a new round of accelerated issuance.
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Source of information: Tokenview
Before and after the additional issuance of USDT, on the one hand, the demand for USDT increased and the transaction volume increased. Foreign media DC FORCASTS reported that the daily transaction volume of USDT once surpassed that of Bitcoin and PayPal, the largest payment service provider; on the other hand, the market value of USDT rose On September 2, USDT once again surpassed XRP to become the third largest cryptocurrency by market value.
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USDT becomes the standard for liquidity mining
By observing the main USDT holding addresses, we can see that DeFi projects are siphoning USDT assets.
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EOS-USDT main position address, information source: bloks.io
And all this is mainly due to the fact that most liquidity mining projects support USDT pledged mining.
Beep News counted 20 mainstream liquidity mining projects or platforms, including YFI, YFII, Curve, Uniswap, Swerve, SushiSwap, DODO, YAM, dForce, UMA, DMD.finance, SUN, Pearl, etc., and found that More than 70% support USDT mining. USDT is not only a DeFi infrastructure, but also a branch - the standard configuration of liquidity mining.
Since mid-June, locked assets in DeFi have shown explosive growth, from about US$1 billion to nearly US$10 billion now, so how much share do stablecoins like USDT account for?
Taking yearn.finance as an example, yearn.finance currently supports 9 fund pools including yCRV, ybCRV, crvRenWSBTC, YFI, DAI, TUSD, USDC, USDT, and aLINK for pledge mining, among which yCRV, ybCRV, DAI, TUSD, USDC, USDT is a stable currency or related to a stable currency.
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Information Sources:https://yieldfarming.info/yearn/yvault/
For the purpose of pledge mining (sweeping wool), the market demand for stablecoins represented by USDT has greatly increased, so we can see that treasuries such as USDT, USDC, PAX, BUSD, etc. frequently send news of printing money and issuing additional coins. The speed is no less than around 3.12, and the strength of additional issuance is even worse.
In fact, in addition to staking, the trading activities of stablecoins on decentralized exchanges are also active. On the one hand, it is because of the monetization logic of "miners" dig-lift-sell-reinvest. "Miners" often use the built-in decentralized trading function of the wallet or directly exchange the mined coins into public chain coins or stable coins on the decentralized trading platform, and then re-invest.
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Changes in DEX transaction volume, source of information: DappTotal
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Curve trading volume changes, information source: DeBank
Analyzing the reasons behind this, TokenPocket co-founder and CTO Chen Da told Beep News that this is mainly because there will be a huge demand for exchanges between stablecoins for a long time.
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Function of USDT: Preserve value and resist impermanent loss of AMM
The stablecoin market is undoubtedly the winner of this round of DeFi mania, but why is it that stablecoins capture most of the liquid mining value instead of other currencies? (Currencies such as ETH will undoubtedly also benefit)
The first is to benefit from the biggest feature of stablecoins, price stability. Whether it is pledged mining or liquid mining, users are essentially unable to quickly deliver pledged assets, that is, they cannot respond quickly to price fluctuations of pledged assets, so the assets with stable prices are the ones that users pledge The first choice for mining and liquidity mining, in order to achieve principal preservation.
Secondly, the most criticized point of automatic market making platforms (AMM) like Uniswap is impermanent loss. The so-called impermanent loss refers to the arbitrage loss caused by the information difference (price) between the AMM platform and the efficient market. Here is an example:
1. Assume that there is an ETH/DAI liquidity pool on Uniswap. At the beginning, the prices of the two assets on Uniswap are consistent with the market prices. The prices and quantities of the two assets are set as follows, and k=10,000 can be calculated. (Note: The Uniswap algorithm mechanism is k=x*y, k is a constant, and x and y represent the quantities of the two assets respectively)
2. Assume that the price of ETH in the market rises to $110. At this time, an arbitrage opportunity will appear on Uniswap. Assume that the arbitrageur buys x ETH from Uniswap with y DAI, and x and y will satisfy the following relationship: (1000+y )*(10-x)=10,000; 1000+y=110*(10-x).
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Uniswap impermanent loss, source of information: Bancor
Observing the above calculation process, we can find that the impermanent loss is actually caused by the relative price of the two assets deviating from the initial value. The English name of the impermanent loss is impermanent loss (non-permanent loss). state, then no matter how much fluctuation there is in the process, the loss will eventually disappear.
However, it is worth noting that in many cases, the relative price of assets cannot return, and impermanent losses often turn into permanent losses. In this case, market makers began to consider reducing the relative price fluctuations of the two assets Resist the risk of impermanent losses, such as providing market-making services for synthetic assets (such as sETH/ETH) and stable coins (such as any transaction pair between DAI, USDC, and USDT).
Therefore, stablecoins have great value and use cases in helping market makers resist impermanent losses, which is one of the reasons why stablecoins can capture the value of liquidity mining.
According to TokenPocket Chen Da’s point of view, the reason why stablecoins represented by USDT can further develop in this round of DeFi boom is not only that stablecoins can resist impermanent losses, but also because stablecoins such as USDT are already relatively popular. Coin speculators already hold USDT, so the corresponding liquidity pool will have a wider audience.
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It has to be said that stablecoins are a very good class of assets that have evolved in the encrypted world. When talking about payment scenarios, Bailey, the governor of the Bank of England, even directly denied the value of Bitcoin, and compared stablecoins with central bank digital currency (CBDC) on a par.
Due to its price stability, stablecoins can play a certain role in risk hedging whether it is in a black swan event in the market or when the market is improving and speculative sentiment is serious. Stablecoins represented by USDT are becoming more and more popular, and they have indeed become a type of basic asset and the infrastructure of the encryption industry.
And those stablecoins that rely on mechanism settings to ensure price stability, such as algorithmic stablecoins and over-collateralized stablecoins, can be separated from centralized control to the greatest extent on the premise of ensuring "stable prices", which is even more commendable. Of course, at present, it seems that few stablecoins can achieve "complete decentralization". Even DAI is adding more and more centralized assets to the collateral list.
