Written by Footprint Analyst Simon (simon@footprint.network)

Date: November 2021

Data Sources：Footprint Stablecoin Dashboard(https://footprint.cool/sc)

Written by Footprint Analyst Simon (simon@footprint.network)

Data Sources

I believe that the first thing most users do when they really enter the encryption world is to exchange their legal currency for stable currency, and then exchange it for other tokens through DEX. Stablecoins are not only one of the important channels for users to enter the cryptocurrency world from the traditional world, but also play a pivotal role in the circulation in the cryptocurrency world.

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Stablecoin classification Image source: Footprint Analytics

Stablecoin Market Cap (November 2021) Source: Footprint Analytics

Centralized stable currency

As the stable currency with the longest history, the centralized stablecoin has grown rapidly while DeFi is booming due to its close relationship with the legal tender. Naturally, it has attracted the attention of regulators. This has further promoted the development of decentralized stablecoins, but over-collateralized stablecoins obviously have problems such as low capital utilization. So in 2021, more algorithmic stablecoins began to show their prominence.

Centralized stable currency

USDT, which has a first-mover advantage, is the only one among centralized stablecoins. Its issuance model is that users remit a certain amount of U.S. dollars to Tether’s bank account. After Tether confirms receipt of the corresponding funds, it will transfer to the user. USDT equal to the amount of US dollars.

Stablecoin market cap (since January 2021) Source: Footprint Analytics

Overcollateralized Stablecoins

The foundation behind centralized stablecoins is still fiat currency. Compared with decentralized stablecoins, centralized stablecoins are more likely to be influenced by the supervision of various countries, and legal currency stored offline cannot be queried and constrained through on-chain contracts. In the decentralized world of the blockchain, there is still a large amount of centralized products that are contrary to the original intention of the blockchain. Just imagine that if Tether is sued by the SEC or it does not provide sufficient reserves, the losses of users holding centralized stablecoins such as USDT will not be protected.

secondary titleLiquityOvercollateralized StablecoinsMakerDaoMakerDao, launched in 2018, has led the development of over-collateralized stablecoins, and thus made its stablecoin DAI the largest in the market value of over-collateralized stablecoins. Online in 2021

Innovated and perfected on the basis of , but the lack of use cases of its stablecoin LUSD has always made it tepid. Abracadabra, whose model is more like MakerDao, has grown rapidly within 2 months by relying on mortgages based on interest-bearing assets. The market value of its stable currency MIM has surpassed that of LUSD, which is one step ahead.

Pawn

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Pawn

Trading volume

In terms of collateral, since MakerDao introduced centralized assets such as USDT and USDC in March 2020, people's doubts about whether DAI is sufficiently decentralized have also been increasing, and the risk of DAI is also bound to the centralized stable currency. Liquity, which only supports one type of collateral to forge LUSD, strives to achieve decentralization in all aspects, and has a better experience in terms of capital utilization and liquidation mechanisms. The core mechanism of Abracadabra is similar to that of MakerDAO, allowing interest-earning assets to be mortgaged. It is more like a MakerDAO that is deployed in multiple chains and has more collateral. This allows its stable currency MIM to grow rapidly, but it also implies higher risk.

From the perspective of transaction volume, the daily transaction volume of DAI far exceeds that of other stablecoins. This is mainly because DAI, as an early cultivator, can support it in various DeFi protocols. Due to the influence of its incentive mechanism, LUSD currently has more than 60% of stablecoins still in circulation within its own system, and supports fewer external use cases, and even the transaction volume of the latecomer MIM far exceeds that of LUSD. The main reason is that Abracadabra provides the function of increasing leverage through flash loans, as well as increasing the liquidity of MIM by incentivizing its token SPELL on Curve.

stability

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Overcollateralized stablecoin daily trading volume (since September 2021) Data source: Footprint Analytics

stability

Liquity maintains the price stability of LUSD by using the redemption mechanism to open arbitrage opportunities to the whole market through the "hard anchor" and the "soft anchor" that allows users to mint LUSD for 1 USD and destroy 1 LUSD for 1 USD at any time.

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Algorithmic Stablecoins

Prices of over-collateralized stablecoins (since January 2021) Data source: Footprint Analytics

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Representative projects: UST, FEI, FRAXTerra ChainAlgorithmic stablecoins maintain their value by incentivizing the market to speculate on the token using their own protocol. The main advantage is that the unsecured mechanism can have a higher capital utilization rate, but if the market does not carry out arbitrage according to the design expected by the agreement, it is easy to make the price break away from the anchor.

Terra Chain

Fei Protocol, which has set a new fundraising record in the DeFi field, is also worth noting. The stablecoin with a market value of 2.4 billion minted within a week fell to 500 million in an instant within 3 months. The stability of Fei is maintained through the anchor adjustment mechanism based on PCV (Protocol controlled value, protocol-controlled assets) and the ETH redemption mechanism. It was originally intended to solve the problems of inefficiency and difficult expansion of over-collateralized stablecoins, but its mechanism has also been continuously revised under pressure from the community after it went online. The current stable mechanism has gone back to the DAI-like PSM module (Peg Stability Module, anchor fixed module.

Trading volume

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Trading volume

The activity of UST trading volume is mainly due to the fact that the entire Terra chain protocol is established around its original stable currency UST. The protocol on Terra has its own UST transaction scene since its birth, and UST can be used with offline payments. Connected, thus stimulating the demand for the use of UST.

stability

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stability

Therefore, the price of UST is relatively stable as a whole, and only when the currency price plummeted in May did it break the anchor. Compared with Fei’s launch in half a year, there have been two more serious unanchors. When Wei was launched for the first time, the usage scenarios of Fei were not enough to support the excessive casting of Fei, and the imbalance between supply and demand caused the price to break down, resulting in a panic that lasted for a month. The unanchoring in May was mainly due to the sharp drop in currency prices, which caused users' distrust.

in conclusion

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• Algorithmic stablecoin price situation (since January 2021) Data source: Footprint Analytics

• in conclusion

• The advantages and pain points of the three types of stablecoins are equally obvious:

• Centralized stablecoins:

• Advantages: Due to its first-mover network advantage, it has the largest volume, and thus has relative stability against fluctuations and a wide range of use cases

• Pain points: Centralized security and opacity that have been criticized all the time

• Overcollateralized Stablecoins:

• Advantages: Because the currency price can remain relatively stable when over-collateralized

• Pain point: low capital utilization

About Footprint Analytics:

The above content is only a personal opinion, for reference and communication only, and does not constitute investment advice. If there are obvious understanding or data errors, feedback is welcome.

About Footprint Analytics:

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