Original author:0x137, Rhythm BlockBeats

Original author:

, Rhythm BlockBeats

Before the article begins, let me tell a story:

In April 2015, the top investment bank Goldman Sachs led a capital investment of nearly US$50 million in a technology start-up company. Only three years later, its market value doubled 60 times to 3 billion, with an annual profit of about US$10 million. Their business is very simple, which is to provide an immutable asset in the ever-changing blockchain industry.

This company is Circle, with a market value of 9 billion today, and the total issuance of its main product USDC exceeds 50 billion US dollars. In an industry where everyone is chanting the slogan "de-Bank", this seemingly "outdated" bank has enjoyed the industry's biggest dividend with the lowest risk.

Stablecoin, the most basic field of the blockchain industry, has emerged nearly a hundred projects in just two years, and its total market value has soared all the way to 200 billion U.S. dollars. From the simplest hedging function in the early days to the absolute underlying assets of all ecology, it is like the Lord of the Rings in Middle-earth, seducing everyone's desires. It bridges all public chain ecology and drives countless protocols and applications. It is an indispensable infrastructure in the encryption field and is well-deserved as the largest track.

Long before the rise of this field, institutions have already made arrangements here. Behind Circle is not only Goldman Sachs, but also Internet giants such as Baidu and mining giants such as Bitmain, behind Tether is Bitfinex, and behind MakerDAO's DAI is a16z. This is actually not surprising. A successful stablecoin project requires not only a huge start-up capital as an endorsement, but also strong market-making capabilities. It is also for this reason that the stablecoin track has always been a feast for institutions. People seem to be able to stand by and watch the big capital carve up this fertile soil until the emergence of algorithmic stablecoins.

Algorithmic stablecoins bring a new narrative: getting rid of the shackles of endorsement and relying on algorithms to achieve anchoring. This is a change for the people. Through a decentralized stability mechanism, everyone can share the cake of the stablecoin track. But in this calculation revolution, countless projects died on the way to conquer Middle-earth.

At present, UST is gaining momentum and has become the Lord of the Rings who won the encryption ring in people's eyes. This Suan leader holding high the banner of decentralization has rekindled people's hope for Suan's future. A few days ago, NEAR completed a financing of 350 million US dollars at an astonishing speed, and immediately revealed its own stable plan: bind NEAR and USN, and launch its own Anchor. For a while, everyone believed that the success of UST showed that the stable path was feasible and worthwhile.

In order to clarify this issue, I discussed with Mable Jiang, partner of Multicoin, Mindao Yang, founder of dForce, and Satoshi Mamoto (0xSoros) from the perspectives of VC, Builder and Investor.

I will tell you below why LUNA is difficult to replicate and why decentralized computing is likely to be a dead end.

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Accompanied by the accusations and doubts of "engaging in Ponzi" and "stepping on the air", LUNA has made a large-scale stablecoin that ranks third in the market value of the encryption market with close to zero collateral. You must admit that this is an incredible Business miracle. But despite its learning value, the most dangerous thing about business miracles is to make you think that you, too, can perform miracles.

Although the stable mechanism is very tempting, LUNA is only the lucky one among dozens of hundreds of projects, and most of the stable projects are still in dire straits. Now that the public chain wants to copy the next miracle along the old path that LUNA has walked, it may be an impossible task.

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Why is it so alluring?

Whether it is a stable currency on the chain or a fiat currency off the chain, the word "seigniorage" (seigniorage) cannot be separated from the design, issuance and circulation. Today, it refers to the economic phenomenon in which the currency issuer accumulates wealth through currency depreciation after absorbing equivalent wealth. To put it bluntly, it is printing money. Dividends from socioeconomic activity.

In the current encrypted world, there are mainly three types of stablecoins: fiat-backed, encrypted asset-backed, and algorithmic stablecoins.

And the reason why a stablecoin like UST is so attractive is because it has the highest seigniorage of the three. By introducing a linked volatility Token, Suanwen turns all the funds flowing into the system into seigniorage, which is often called "Print money out of the thin air". This mechanism greatly reduces the start-up cost , which increases the anchor rate to a certain extent, but it is also accompanied by inherent fragility.

Since DeFi Summer, stablecoin projects have sprung up everywhere, trying to get the dividends of stablecoins through this mechanism. But from IRON to BAC to FEI, this battlefield can be said to be full of corpses, and there are very few survivors, and the winner may only be UST.

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To become the next LUNA, what does the public chain need to have?

After the news that NEAR will launch Suanwen, we seem to have seen such a trend: the public chain also hopes to combine the LUNA-UST model to attract external funds and promote ecological development. But when discussing whether there will be a next LUNA, I was very impressed by what Mr. Satoshi Mamoto said: "UST today is the result of the right time, place and people. The next LUNA may still be LUNA. Even if it is not, it will be It will not be other public chains.”

The first is to have accurate positioning and the right timing. The Terra team's initial positioning has always been very accurate, that is, the financial market. Therefore, we can see that the team has been working hard on the UST application market, whether it is the previous offline retail or the current Anchor chain bank. Fortunately, LUNA has caught up with the trend of DeFi Summer and public chain narratives. Before that, the offline retail market of UST has been unable to open, but after packaging itself as an L1 public chain, the application scenarios of UST opened up at once.

The second is teamwork. The best ace played by the Terra team LFG (LUNA Foundation Guard) is Anchor, which may be the most successful advertising campaign in the history of encryption. In a highly volatile market, it is very attractive to be able to provide stable and high-return savings services for a long time. When the market is bad, it captures the strongest emotion of investors-fear. Now, as long as people who want to seek stable passive income in the encryption market, the first thing that comes to mind is Anchor.

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Also, working with the right people at the right time is critical. For example, the cooperation between UST and Abracadabra is a key to UST's success in unlocking the encryption market. In the middle and late last year, Abracadabra launched Degenbox on Ethereum, which provided UST users with deposit leverage in the form of Loop, which increased Anchor's 20% APY by dozens of points, and made UST stable in comparison with USDC, DAI, etc. It has a stronger attractiveness when the currency giants compete. Now, UST is one of the best TVL players in both Curve on Ethereum and Trader Joe on Avalanche.

Of course, the most critical thing is the strong capital thrust behind LFG. Behind the success of UST is the strong "money ability". When the death spiral occurred in LUNA in May last year, without the support of LFG, UST may have been as doomed as other stables. And if Anchor did not receive huge subsidies, UST would not have such a strong Lindy effect today.

May 19 last year actually triggered the death spiral of LUNA, and LFG announced afterwards that it would reserve hundreds of millions of dollars to protect the price of LUNA. Image taken from Coin MarketCap

As a witness of the industry, you can actually feel that the current encryption market is no longer suitable for the growth of Xinsuan. Today's stablecoin track is a red sea. Not only is there not enough time to establish the Lindy effect, but there are also fewer and fewer large-scale projects willing to cooperate with you. In this environment, the Matthew effect between large and small projects is even greater. exceptionally prominent. You can ask yourself the simplest question, in the case of the same APY, are you willing to take risks for the new calculation of USN, or hold the battle-tested UST with stronger consensus?

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Is the public chain stable? I'm afraid it's not that easy

Regarding the stability of the public chain, Yang Mindao, the founder of dForce, has such a point of view: "From the application to the public chain, and from the public chain to the application, are two completely different concepts." Here is a very key issue, that is, general The plight of the application of the large-scale public chain.

First of all, we need to figure out why the public chain should end up in application? There is no doubt that nature is to stimulate the development of ecology. For example, the BNB chain supports Pancake Swap to promote its own DeFi ecology. However, we found that the DeFi of the BNB ecology cannot compare with the Ethereum DeFi in terms of the individual strength of the project or the activity of the overall track.

Of course, there must be a first-come-first-served factor, but the more critical reason is the degree of decentralization. For a developer, the probability of success in DeFi development on Ethereum is actually higher than that on the BNB chain. The simplest example is Sushi. After optimizing the product model, Sushi caused a huge blow to Uni in a short period of time. But it is different on the BNB chain. Pancake has the direct support of Binance, which makes Pancake stand on a different starting line, and its strength also distances itself from other competitors. When developers know that their chances of winning are slim, they will stop trying new projects. This is why many public chains would rather set up foundations to fund projects than do projects themselves.

Then why did LUNA, one of the three major public chains, succeed in being a stablecoin?

Before starting the transformation to the public chain, the story told by LUNA was mainly to promote the offline retail market, but after the rise of the public chain narrative, LUNA saw better application scenarios of UST, and gradually packaged itself into a public chain. Here, the narrative of the public chain is to assist the promotion of UST, and the purpose is to find more application scenarios for UST.

After transforming into a public chain, UST does have more application scenarios. From Mirror to Anchor, the Terra team has created a series of application scenarios for UST, and is actively cooperating with other ecologies to promote UST to other ecologies. So you will find that although the Terra ecosystem has only a few dozen applications, it accounts for nearly 20 billion US dollars in TVL. In the final analysis, LUNA does not care whether its ecology is good or not, as long as UST has enough application scenarios.

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Terra's ecological TVL is US$19 billion, but there are only 27 applications. In contrast, the Avalanche ecosystem has nearly 200 applications, but only about $9 billion in TVL. Image taken from DeFi Llama

However, for a general-purpose public chain like NEAR, the purpose of launching the calculation stability is completely opposite to that of LUNA. The use of USN is to promote the development of its own public chain ecology, attract more talents, and build better applications.

At this time, NEAR will encounter the same problem as the BNB chain, that is, the application of the public chain will have a negative impact on the ecology. First of all, to promote USN, NEAR needs to build a driving engine for it, such as the upcoming NEAR version of Anchor. It is no exaggeration to say that this application must become the core driving USN, so in this application scenario alone, it is difficult for the NEAR ecosystem to have other applications to compete with it.

Of course, you can say that NEAR made such a decision to find a new narrative for itself. This is understandable in itself. After all, in the face of the ever-approaching Ethereum Rollup army, the fast and cheap narrative of the new L1 public chain seems to be untenable. up. But copying LUNA's old way, attracting capital and stabilizing market value through stable calculations, it is a very straightforward pull game.

However, this is not the main problem that USN will face. Regardless of whether it plays or not, NEAR's move is based on the assumption that "LUNA's path has been cleared". After stably linking with the original Token and launching an Anchor, its market value and ecology will inevitably increase significantly. But is this really the case?

LUNA has abandoned the road that the public chain should emulate

The story of LUNA is very similar to the French Revolution led by Napoleon. After conquering the country under the banner of a democratic republic, he was crowned as the emperor himself. UST, under the banner of decentralization and democratization, has successfully expanded its market value. Going back to the road of endorsement of traditional stablecoins. When a project makes a major change, it is often because it realizes that the old way will not work. The same is true when UST is now looking for endorsements. The public chain that is or wants to emulate LUNA may not realize that LUNA has embarked on a new road to salvation.

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What's wrong with UST?

Eighty to ninety percent of the voices questioning UST before were related to the word "Ponzi". To find out the problems of UST, we might as well look back at OHM, which is also regarded as Ponzi, and those DeFi 2.0 that once flourished.

The reason why DeFi 2.0 such as OHM eventually became a veritable Ponzi is, in the final analysis, two reasons: liquidity and endorsement.

In fact, OHM also wants to be a decentralized stable savings currency, but unlike various stablecoins anchored to fiat currencies, OHM does not anchor other assets, but achieves price stability by establishing a huge savings. But in fact, we have seen that the encryption market has never paid for this narrative of OHM. No matter how hard the team tried, they failed to find an application scenario for OHM that could be popularized on a large scale. Without liquidity, OHM becomes a speculative game for holders, who will unlock and leave when they earn enough.

On the other hand, OHM's method of building savings is also very different from Suanwen. OHM does not have a redemption mechanism. After users mint OHM through Bond, there is no way to redeem their own assets with OHM. That is to say, the savings absorbed by the agreement are not used to directly endorse OHM. The project only promises to repurchase when the price of OHM falls through the "agreement endorsement", so as to cover the bottom line for holders. But we all know that this so-called "agreement endorsement" has never happened.

Today's UST is actually facing the same problem. Behind the huge market value of UST is the worrying Anchor TVL. Although UST is widely used in ecosystems such as Ethereum and Avalanche, the liquidity provided by these ecosystems is far from enough. Most people hold UST for the 20% stable APY.Anchor is now losing more than $4 million a day. At the beginning of this year, LFG once again announced the injection of 500 million US dollars for Anchor, and then burned 140 million in less than 2 months. Rhythm was previously in"The stable currency interest rate has been as high as 20% for a long time, is Anchor also a Ponzi?" "

According to a detailed calculation, according to the current loss rate, Anchor can only support another 3 months at most.

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To put it bluntly, the only endorsement of UST now is the "money" ability of LFG and the capital behind it, which provides unlimited bullets for maintaining UST liquidity. But if LFG stops posting money to Anchor in the future, the UST of 14 billion US dollars will have nowhere to go. If this happens, the consequences cannot even be described as "unthinkable".

Faced with this terrible dilemma of sustainability, LFG must start to find a way out, and the problems to be solved are still the two points just mentioned: endorsement and liquidity.

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Kidnap BTC, live and die with the encrypted market

The first thing to exclude must be legal currency, because once it is held, there will be counterparty risks, and UST will not be decentralized at all, so the endorsement assets must be selected in the encrypted market. In this way, BTC has become a very natural selection. So in February of this year, LFG spent US$1 billion to continue buying BTC, which even directly drove up the price of BTC.

As the asset with the strongest Lindy effect in the encryption field, BTC is almost regarded as a fixed income. LFG chose to buy at this time, and it is also betting on the future of BTC, although it only bought 1 billion It costs more dollars, but they bet that the more than 40,000 BTC they bought will bring higher endorsement value in the next 5 or 10 years.

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LFG currently purchases savings, of which BTC accounts for 70%, USDC accounts for 16%, and there are also a small amount of USDT and LUNA. The picture is taken from the official website of LFG

Of course, it is definitely not enough to spend money on your own. If you want the savings value to keep up with the market value growth of UST, you must establish a new endorsement mechanism. When users use LUNA to mint UST, part of the LUNA will no longer be destroyed. It is used to buy BTC, so that UST's endorsement can grow together with the market value in this way.

In order to ensure that your BTC savings will not be lost quickly, LFG also played a trick to force you to buy BTC elsewhere. When users want to use 1 UST to redeem 1 USD equivalent of BTC, they must pay a 1% handling fee. In this way, unless UST breaks the anchor, BTC savings will only increase.

In the eyes of many people, LFG’s buying of BTC is tantamount to taking off his own crotch pants. After all, as a stable person, buying an endorsement is slapping himself in the face. But Do Kwon weaves a nice story for UST: BTC, as the asset with the highest consensus in the encryption field, can allow users of other ecosystems to increase their trust in UST, further expanding its liquidity and application scenarios. Although the new endorsement mechanism has reduced the impetus for LUNA to a certain extent, the cake of UST can be made bigger, which is beneficial to LUNA in the long run.

With such a narrative, there is no need for LFG to stop at BTC, because this new mechanism can also be applied to other assets. Not long ago, Terra announced a cooperation with Avalanche. In the future, AVAX holders can directly use AVAX to mint UST in their own ecology. For this reason, the founders of the two ecology also sat down and opened an AMA together. You should know that AVAX does not adopt an inflationary economic model, and the total circulation has a hard cap. If the market value of UST continues to grow, the scarcity of AVAX will become even higher. As far as UST is concerned, it can enjoy the more active ecological dividend of Avalanche and find more application scenarios.

It is no exaggeration to say that UST does not want to fight alone in the future, it wants to coexist with the entire encryption market.

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Eliminate 3Crv, try to establish nuclear deterrence

Before the emergence of Curve, the living environment of small stablecoin projects can be said to be very harsh, and almost no major agreements are willing to take risks to provide liquidity for them. Unanchoring phenomenon. The stablecoin track can thrive, and Curve is a well-deserved hero. Most of them are able to survive to this day because Curve provides them with a protective umbrella. As long as a new project is listed on Curve, it can more or less solve its own liquidity problems.

There is a very critical liquidity pool on Curve, called 3Crv, which is composed of three stablecoins USDT, USDC and DAI. It is one of the largest stablecoin pools in the current encryption market, with a TVL exceeding US$3.5 billion. The reason why Curve is the hero of the stablecoin track is that it allows other stablecoins to build their own sub-pools on the basis of this 3Crv pool. Whether you are a new project or not, as long as you build a sub-pool here, you can enjoy it immediately To the best liquidity in the market, so when you search for a stablecoin pool on Curve, you will basically see the style of XXX-3Crv, and UST is no exception.

Almost all stablecoin pools on Curve use 3Crv pools. Image taken from Curve WebApp

The UST-3Crv pool is the stable currency pool second only to 3Crv on Curve, with a TVL of more than 1.3 billion US dollars, of which UST accounted for 570 million. To be honest, this level of liquidity is already very good compared with other calculations, but for UST, a TVL of less than 600 million US dollars is not enough to solve its own worries. After all, no matter how high the TVL is, it is just a rubbish. Players who eat. Although the Big Three in 3CRV took a lot of risks, they also obtained considerable benefits while providing liquidity for other projects.

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TVL comparison between UST-3Crv pool and 3Crv pool on Ethereum mainnet Curve. Image taken from Dune AnalyticsWhen talking about this issue, Mable Jiang, a partner of Multicoin, said to me: "Just like the support of oil to the US dollar, the endorsement of BTC as UST is ultimately limited, and the remaining parts need to be resolved by force." Mable mentioned an important point here, which is force. The reason why today's US dollar is an international reserve currency is that it has strong military and financial strength, and can force most international commodity transactions to be settled in US dollars. For USDT, USDC, and DAI, the 3Crv pool is their nuclear weapon in the stablecoin market. Any stablecoin that wants to become bigger and more stable must be connected to the 3Crv pool, which makes these three giants become savings currencies in the encryption field , controlling the largest liquidity in the market.UST wants to solve the liquidity problem, why not just be the one who feeds it? So not long ago, UST jointly established a 4Crv pool with Frax and Redacted Cartel, intending to completely replace 3Crv. Regarding Curve War, Rhythm is in "

Curve War escalates CVX battle, exciting power struggle continues

The 4Crv pool is composed of UST, FXS, USDT and USDC. If you look closely, you will find that the previous DAI is gone, and the purpose of LFG is very clear, which is to kill DAI. After UST began to accept endorsement, DAI backed by encrypted assets became a direct competitor of UST to some extent. By squeezing out the market capitalization occupied by DAI, UST can more easily obtain the savings status in the encrypted market and provide Anchor Share some stress. Of course, it is not that simple to eat a stablecoin giant endorsed by a16z, but in order to keep itself alive, UST has to do so.

To be fair, after accepting the endorsement and establishing 4Crv, LFG has indeed found a new and correct direction for UST, but whether it is endorsement or liquidity, LFG's solution is just the beginning, and whether these solutions will work in the future is still an open question. unknown. All in all, the current path of UST has never been traveled by anyone. If it wants to go through, I am afraid that only UST can do it. It is not appropriate to choose to follow the old path abandoned by LUNA at this time.

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A stablecoin backed by encrypted assets like DAI tells a good decentralization story: legal currency endorsement always has counterparty risk, and a subpoena may kill it, so the encrypted market really needs a go Centralized stablecoins. But for Suanwen, decentralization is not its most attractive feature.

The story that Suanwen tells is to make the stablecoin track more democratized, so that ordinary people can enjoy the dividends of stablecoins more directly. But no matter whether it is the revolutionary martyrs who fell on the road like IRON and BAC, or the emperor who is too big to fail like UST, it seems that they have not escaped the paradox about decentralization and endorsement.

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Pure decentralization is stable, destined to be a Greek tragedy

The stablecoin giants invested by institutions are pampered, enjoy the best resources in the best industry, and eat the biggest dividends in the market, while the stablecoin projects of civilian origin are dying one after another. "The rich wine and meat stinks, and the road is frozen to death." This poem can't be more appropriate to describe the current stablecoin track.

Just this week, Circle, the USDC issuing company, announced a new round of financing of US$400 million, and formed a strategic partnership with BlackRock to further promote the application scenarios of USDC in the traditional financial field. On the 14th, Circle even submitted an application to operate as a bank in the US. In fact, whether it is the previous Visa or the current BlackRock, we will find that for traditional institutions, accepting digital stablecoins like USDC is not a difficult choice.

First of all, USDC is 100% backed by US dollars, so there is no risk of loss of collateral value. Secondly, Circle has specially set up an open source API interface for USDC, in order to facilitate enterprises and institutions to access their own ecology. The most important thing is that the issuance of USDC is approved by the New York Department of Financial Services. The so-called "subpoena" concerns are somewhat unfounded.

In contrast, this is the most fatal problem of decentralized computing stability, that is, it is difficult to get application support from large projects and institutions, both inside and outside the industry. In the relatively conservative traditional financial field, no one is willing to accept an "air asset" that has no endorsement at all, and in the interest-first encryption market, no one will take unnecessary risks without economic incentives.

In this case, if you want to attract users, you must give higher economic incentives, and if there is not enough financial strength behind it, it will easily collapse. Take Anchor as an example. If it weren't for the 20% APY, not many people would be willing to use UST. For this "marketing advertisement", the money burned by LFG may be enough to support several small DeFi projects.

"In terms of stable currency, I think team KYC is still very necessary." This is Yang Mindao's opinion on the stable currency team, and I agree with it very much. Regardless of whether it is stable or not, count all the current large stablecoins, each of which has a strong team behind it. The team's real-name authentication is a commitment to product security. When there is a problem with one's own calculation, you can't leave users and projects alone.

Decentralization is a gradual process, so in the current track closely connected with stability and security, we really need a little centralization, at least for now. Without an excellent team charging forward, without strong capital burning money behind, if you want to rely on your own efforts to fight a bloody road, I am afraid it will only become another Greek tragedy.

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Does it have a future?

After purchasing BTC, UST has become a strange product in the stablecoin track-a stable calculation using the endorsement mechanism. Today's UST has many similarities with the US dollar.

Before 1971, the U.S. dollar using the gold standard was more like DAI or USDC, and each banknote was a Fed note backed by gold. At that time, the concept of "money" referred to gold. But there is a problem with this system, that is, it is easy to run out of money to spend, and when gold reserves decline, the Fed's ability to print money is more limited, or it is easier to default. This happened to the U.S. dollar after the Vietnam War, so Nixon immediately announced the decoupling of the U.S. dollar from gold. Since then, the U.S. dollar has entered the Petro-dollar era, and the concept of "money" has changed.

After the decoupling of the dollar, the Federal Reserve has become a real money printing machine, and the United States no longer has to worry about running out of money to spend. But in order to prevent inflation, the U.S. dollar must find a large enough liquidity and application market. Therefore, the endorsement of the U.S. dollar has now become a powerful military and financial power, which is the "force" mentioned by Mable Jiang.

Therefore, it is unrealistic to say that there is no need for endorsement to be stable, just like Yang Mindao said: "The road from excess to full, from zero mortgage to partial mortgage is all possible. All roads lead to Rome, but the key point is Find your own liquidity endorsement." Without liquidity as an endorsement, any calculation will not work.

After "kidnapping" BTC and Curve, UST seems to have found its own nuclear weapon, but it is important to know that this kind of operation is not something everyone can do. So for ordinary Suanwen, is there really no other way out?

In fact, whether it is stable or not is not an either-or question. Combining the advantages of Suanwen and traditional stablecoins like UST is not necessarily a bad thing. The stable and efficient anchoring rate and its dual currency mechanism do have its merits for the current encryption market. It can make the Token of the protocol have better value capture capabilities. The key point is to find a clear Market positioning.