Analysis and Prospect of the Stablecoin Track

introduction

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introduction

This article strives to excavate and sort out the core context of stable currency development, and grasp the development opportunities of WEB3 in the future.

(The definition of WEB3 discussed in this article comes from Dr. Gavin Wood - Web3 is the next generation of the Internet, a distributed, open, interoperable infrastructure designed to provide a more secure, transparent and credible Internet experience .)

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one. Stablecoins are the cornerstone of WEB3

Stablecoin is a trading medium and benchmark for encrypted activities and assets. Its price is linked to the price of stable assets such as the US dollar and the euro. It aims to provide a stable value storage and exchange method, which can help reduce the risk of cryptocurrency transactions. The market Stablecoins with a high market share include USDT, USDC, BUSD, DAI, etc. Since the price of stablecoins is relatively stable, traders can use stablecoins for transactions without worrying about the risks caused by price fluctuations.

Stablecoins are to BTC like central bank currencies are to gold. In the real world, with the development of technology and economy, gold and silver rely on natural reserves and human excavation, which cannot meet the development needs of technology and economic activities. Therefore, the issuance of legal tender by countries through sovereign reputation is in line with objective needs and historical trends. However, at the same time that the sovereign regains the right to mint coins from nature, it also has its drawbacks, such as the uncontrolled over-issuance of legal tender, excessive intervention in market activities, fraudulent and illegal operations by centralized institutions, and so on.

Therefore, a set of currencies issued based on a set of reasonable, open and transparent established mechanisms is about to emerge.

two. market situation

The stablecoin market has always been a battleground for strategists from all walks of life. Many projects emerge in endlessly, mixed with good and evil, and opportunities and disillusionment are constantly repeated. We divide stablecoins into three categories.

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1. Centralized Stablecoins

However, there are certain trust risks in centralized stablecoins. This could lead to a decline in the value of the stablecoin or risk losing it if the central authority or company encounters major problems or fraud. In addition, the circulation and use of centralized stablecoins may be restricted by government regulators, which may limit their availability and liquidity. Tether’s USDT has been criticized for not being transparent enough in mortgage assets, and people are worried about whether there are sufficient mortgage assets, that is, when a large number of redemptions occur, people worry about whether they can get back the corresponding US dollars 1:1. Although Circle’s USDC has been strictly regulated, like Silicon Valley Bank, Signature Bank, and First Republic Bank, it has been worried about whether there is a risk of bankruptcy and has broken anchor for a period of time. PAXOS’s BUSD has been operating in compliance under the supervision of US regulatory agencies. However, with many factors considered, the SEC still initiated a lawsuit against PAXOS and BUSD, which makes people worry that even if the compliance is transparent, the center There are also unstable factors in the stable currency.

On the whole, it will play an important basic value in the WEB3 world in the short term. However, centralized stablecoins have financial opacity and risks of being easily manipulated. They are not a good type of asset. In the long run, they will not be the most trustworthy asset in WEB3 in the future.

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2. Over-collateralized stablecoins

Over-collateralized stablecoins have a collateralization ratio higher than 100%, which means that their collateral value is much higher than their issuance value. The higher the collateralization ratio, the higher the price stability and security of the stablecoin, as the collateral provides protection against price volatility. However, a high collateralization ratio can lead to illiquidity, making stablecoins difficult to trade.

On the whole, over-collateralized stablecoins will play an increasingly important role in the WEB3 world, and there will be continuous innovations in the future to improve asset liquidity and efficiency.

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3. Algorithmic Stablecoins"Algorithmic stablecoins require no collateral and typically use algorithmic mechanisms to adjust supply and interest rates, as well as maintain price stability."TerraUSD (UST) is a stable currency in the Terra ecosystem, using a currency called"Adaptive Algorithm"The algorithm maintains price stability by dynamically adjusting the supply and interest rates of stablecoins. UST also uses a method called

anchor fee

Since currency can be minted without relying on the value of the collateral, the corresponding algorithm must have a sufficiently detailed mathematical model to measure the total amount of goods and services that the current ecological environment can provide, and then accurately calculate a relatively reasonable Supply. If the model is too simple or wrong, and does not fully take into account all aspects of ecology, the supply generated by its mismatch will lead to insufficient money supply, unable to meet ecological needs, or cause a death spiral after excessive issuance.

The UST launched by the Terra team has a relatively complex and refined algorithmic stablecoin mechanism, which is worth citing in many aspects, but its total supply can be increased infinitely, which does not conform to the basic principles of currency, and is destined to only be used in stablecoins. A hard trial at the track. The track is very difficult and there is still a long way to go.

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three. Challenges and Opportunities

However, under the wild living environment and blows, new vitality is also quietly gestating. With the continuous development of WEB3, stablecoins will inevitably break through all restrictions from supervision, policy, economic cycle, and technology, and gradually create Produce products with stronger vitality.

Looking to the future, to be able to breed high-quality decentralized stablecoin products, it needs to conform to the following basic logic.

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Human desires and needs are the underlying driving force of economic and technological development. Only products and services that can meet people's various production, business, living, and spiritual needs will have market vitality. The demand in the market at the current stage is mainly speculation, simple exchange and payment, and the demand is not strong. In the future, scenarios that can truly empower content consumption and real-world situations, such as social, gaming, video, finance, supply chain, energy and other scenarios, will generate huge demand, requiring a large number of blockchain native currencies for pricing and payment.

Therefore, high-quality stable currency projects, such as Ethereum and Polkadot, will only be born in an ecology with more innovations and out-of-the-box effects. Other ecology without technology and product innovation, even if there is capital injection in the short term, in the long run It is doomed that there will be no high-quality projects.

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Security incidents abound in history. FTX exchange, O 3 cross-chain bridge, wormhole cross-chain bridge, etc. collapsed due to their own reasons, USDC unanchored, BUSD was restricted by censorship, etc., which caused panic due to the influence of external policies. When minting and using stablecoins, people will definitely worry about whether their assets can exist stably and whether they will not be affected by individual opinions, unexpected behaviors, and product security vulnerabilities. This is similar to the business environment. Only in a safe and stable environment can long-term production and operation be carried out; otherwise, short-term speculation can only be risky.

The steady development of the WEB3 world must require a currency that does not depend on any individual or institution, but is controlled by the general public, that is, a cryptocurrency with decentralized attributes. At this point, it must conform to the characteristics and spirit of Bitcoin, otherwise the story of the collapse of the mirage will continue to be repeated again and again. Therefore, a more decentralized ecology in the fields of voting governance, iterative upgrades, fair distribution of profits, and community atmosphere will gradually rise, which will be a fertile ground for the growth of high-quality projects in the future.

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3. Relying on hard currency casting

Only hard currency can maintain currency stability and promote economic development and prosperity. Looking at the currencies used in human history, they can be roughly divided into two categories. The first category is feathers, shells, stones, gold, silver and other natural objects that are scarce but basically have no practical application value; the second category is Relying on sovereign credit, legal tender issued through debt. The two core elements are the scarcity of the total amount of material, or the new increase of material matching the economic increase.

Therefore, both the physical and virtual worlds are calling for a currency that is more reliable, more objective, and more precise in controlling the total amount. Stablecoins endorsed by consensus tokens with a high degree of decentralization (BTC, DOGE, etc.) Minted stablecoins, these two tracks may be the mainstream direction for producing high-quality projects in the future.

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Four. Follow the project