Bankless: One year after the UST crash, what has the market learned?
Original title: "Stablecoins: 1 Year After Terra》
Original author: 563
Original Compilation: Kate, Marsbit
Original Compilation: Kate, Marsbit
Today, we take a look at the state of stablecoins one year after the UST crash.
——Bankless team
——Bankless team
A year after the UST fiasco, what has the market learned?
The death spiral of Terra USD (UST) and the corresponding collapse of LUNA crushed crypto market hopes of a new all-time high in 2022, toppling the first (of many) leveraged dominoes fueled by cheap money, hype, and outright supported by fraud. Users who pinned their hopes on UST's idealistic algorithm design wiped out billions of dollars and countless fortunes in just a few days.
Many early supporters of the Terra ecosystem were fascinated by the concept of a fully decentralized stablecoin. While UST’s architecture ultimately proved unsustainable, some would argue that the idea that DeFi users should completely insulate themselves from traditional systems is a very worthy goal.
A year later, when we reflect, we ask ourselves, "What have we learned?" and "Where are we now?"
While algorithmic ("algo") stablecoins have fallen out of favor (USTC still has a market capitalization of $150 million despite a measly 1.5 cents), the broader stablecoin industry has continued to solidify its product-market fit. Whether as a medium of exchange or a store of value during bear markets, today’s DeFi market is flooded with stable assets.
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source:Twitter
In comparison, in April 2022, the market capitalization of stablecoins is about 82% centralized stablecoins (mainly USDT, USDC, BUSD and TUSD). Today, we are 95% centralized. Tether (USDT) alone ballooned from 44% of the stablecoin total to over 63% today following the USDC depeg. Not very good looking.
So, on the one hand, we have algorithmic stablecoins, which, while decentralized, are vulnerable to death spirals. On the other hand, we have centralized fiat-backed stablecoins that are open to bank failures and censorship. How do we coordinate this?
Fortunately for us, bear markets have been the ideal environment for practitioners to stop and do what they do best — innovate.
In today’s article, we’ll cover some new decentralized stablecoin projects that we’re excited about. These new projects don’t just improve the anti-fragility of token designs — new mechanisms and truly innovative use cases for stablecoins are also on the horizon that have the potential to erode Tether’s dominance and provide some much-needed decentralization to the market.
1. Curve's crvUSD
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source:Twitter
Just like users can use Maker to mint DAI with their ETH, Curve users will soon be able to mint crvUSD with assets on Curve such as ETH and its derivatives. With their new Loan Liquidation AMM Algorithm (LLAMMA), Curve intends to improve upon DAI's proven Collateralized Debt Position (CDP = "loan") stablecoin design.
Here is the ELI 5 version on why crvUSD liquidation can be a big improvement over traditional designs:
Collateral is liquidated gradually within a certain price range, rather than immediately when the liquidation price is reached. This reduces the likelihood of large liquidations causing market volatility.
crvUSD is designed to provide lower prices for Curve's AMMs, thereby incentivizing liquidators to arbitrage on external DEXs. In addition, the strategy of gradual liquidation reduces the need for external DEX liquidity, thereby reducing the possibility of bad debt accumulation.
If the price rebounds to be higher than the liquidation price, the liquidation can be canceled. That means "scams" won't be a major concern for borrowers.
2. TapiocaDAO’s USDO
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source:DeFi Llama
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TapiocaDAO is building a full-chain decentralized bank - users can seamlessly borrow, lend and mint their stablecoin (USDO) on ~17 EVM and non-EVM chains (and counting) - all without bridges . Tapioca achieves this by utilizing LayerZero's general-purpose messaging network as its full-chain infrastructure, with the goal of building a robust stablecoin for our multi-chain future.
USDO is another CDP design that uses network gas tokens (such as ETH, MATIC, etc.) and their LSD as collateral. In addition to simple fund transfers, full-chain lending and leverage are also possible. For example, you can:
Mint USDO on Berachain by opening a Collateralized Debt Position (CDP = "loan") against your stMATIC on Polygon, with up to 5x leverage available with just one click
Use your yielding jGLP on Arbitrum as collateral to borrow USDO on Starknet, and your proceeds will help repay your loan
Lend your USDO from zkSync to users on any of ~17 chains supported by LayerZero - a huge improvement in capital efficiency compared to traditional lending platforms
DeFi's liquidity fragmentation problem has always been a problem for existing protocols and emerging protocols. With Tapioca using LayerZero, we may soon see the day when new projects are no longer forced to default on liquidity market leaders.
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source:Twitter
The original paper, published in April, revealed the basic design and motivation behind Dinero. Essentially, Dinero aims to provide users with premium Ethereum blockspace via a private RPC (Remote Procedure Call), called the Redacted Relayer. RPC sends transaction data from dApp/wallet to blockchain.
Unlike transacting with default RPC, using Redacted Relayer offers some advantages:
Prevent malicious actors from exploiting MEV opportunities (hi Jared!)
Meta Transactions - the ability to use DINERO stablecoins instead of ETH to pay for gas fees
Once a certain scale is reached, additional use cases such as private transactions and payment for order flow become possible
The DINERO stablecoin itself is a CDP over-collateralized by a combination of USDC and Redacted's own LSD pxETH, where the ETH used to mint pxETH is used to run Redacted's validators. This closed-loop system allows Redacted to create a comfortable blockchain ecosystem. By marketing DINERO as a medium of exchange and gas token on their blockspace island, Redacted is turning things around - offering a unique new use case for stablecoins.
The future is on-chain and over-collateralized
For the decentralists among us (myself included), 2023 will be an exciting year for stablecoin innovation.
With most projects shunning algorithm design and moving toward overcollateralization, the likelihood of a UST-style death spiral diminishes with subsequent code commits.
Even Frax — whose own name refers to its decentralized architecture — has decided to go full-collateralized — suggesting that the market’s appetite for “unsteady stability” is at an all-time low. We also observed experiments with non-pegged Defi-native assets, such as Reflexer’s RAI, pushing the boundaries of the centralized/decentralized dichotomy.
Overall, we see DeFi users excited about having a decentralized stablecoin fully backed by on-chain assets. Whether the future is dominated by crvUSD, USDO, DINERO, FRAX, RAI, or something new, at least we all agree that it is better than Tether.
