Liquidity is not everything, analyze 10 stablecoin projects from an overall perspective

特邀专栏作者

2022-06-09 12:30

This article is about 16717 words, reading the full article takes about 24 minutes

From an overall perspective, analyze the four aspects of assets, liabilities, liquidity, and usage scenarios, and re-examine the stablecoin project.

introduction

first level title

In May, Luna crashed and UST broke its anchor sharply, impacting the already sluggish market. Numerous agreements have been liquidated, and the stablecoin market has suffered short-term shocks. According to data from Coingecko and Defillama, the total market value of stablecoins fell by 5.34% after the Luna crash, and DeFi TVL dropped by 43%. The market fluctuated violently. It was not until the smoke cleared that people realized that the asset side of the stablecoin project was so important.

TL；DR

Looking back, people found that the previous steady-state projects were almost all lame giants built on unsustainable credit expansion. The integrity of the stablecoin project was selectively ignored by people. After all, people at that time believed that assets could be created out of thin air based on expectations, and extreme liquidity crises only existed in assumptions, and people were immersed in the high leverage brought about by credit expansion. However, the bloody reality woke people up, and the run began to happen, and the assets were not paid enough.
first level title
It is necessary to examine the stablecoin project from an overall perspective, and analyze it from four aspects: assets, liabilities, liquidity, and usage scenarios. The asset structure determines the solvency of the stablecoin project, the liability structure determines the repayment structure of the stablecoin project, the liquidity mechanism reflects how to achieve short-term stability, and the usage scenario is the root of people's demand for stablecoins.
Both USDT and USDC have the ability to withstand the exchange of tens of billions of dollars in a short period of time, but in comparison, USDC has a more stable asset structure and a stronger ability to deal with extreme liquidity crises.
The deep reason for UST's collapse is that the market value of expected assets (Luna) cannot reflect the real cash value, and the asset structure is seriously unbalanced. At the same time, the liability structure is deformed, 75% of the liabilities are absorbed by Anchor, and the usage scenarios are limited to the interior of the ecosystem.
DAI's reserve assets are very stable and diversified, and it still claims to be the safest decentralized stable currency. However, as a trading pair settlement asset, there is still a big gap from USDC. The deposit rate provided by MakerDAO to users is also often criticized, and the subjective initiative of users to hold DAI is also insufficient.
FRAX's asset structure is very stable compared to UST, and will shift to full mortgage in the future. At present, FRAX has gradually become the valuation method of multi-chain assets, and its usage scenarios of DeFi ecology have quietly surpassed DAI.
For projects that rely on market arbitrage to maintain stability, the arbitrage mechanism may fail under extreme market conditions, and relying on the protocol itself to manage liquidity is inefficient.

Unsecured stablecoins have proven unable to support their debt issuance for a long time, and will eventually turn to fully collateralized stablecoins.

first level title

Stablecoin projects need to be viewed from a holistic perspectiveStablecoins can never only look at innovations in liquidity, but must be viewed from a holistic perspective. Assets guarantee redemption, liabilities determine the repayment structure, liquidity management ensures that stablecoins can withstand short-term shocks, and usage scenarios are the source of expansion. Extreme prominence in one aspect may lead to rapid expansion in the short term, but as long as there is a shortcoming in one aspect, it will declare long-term demise.

This article will analyze 10 representative stablecoin projects from the four dimensions of assets, liabilities, liquidity and usage scenarios. Before the specific analysis, the assets, liabilities, liquidity and usage scenarios are respectively summarized, and some concepts and frameworks are clarified.

assets

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assets

The asset side is a key point of the stablecoin project. On the asset side, it is necessary to pay attention to the selection of reserve assets, the proportion of each asset, and the mortgage rate. These elements constitute the asset structure of a stablecoin project.Reserve assets refer to valuable assets used by the project to support stable currency redemption. Multicoin Capital mentioned in the 2018 stablecoin overview that the reserve assets of stablecoins include fiat currency, seigniorage stocks and digital assets. Dimitrios Koutsoupakis argued in his 2020 paper that reserve assets include sovereign state credit, token assets within the ecosystem, and token assets outside the ecosystem. Combining various literatures, we believe that there are four categories of reserve assets:
Sovereign state credit: The credit currency issued by sovereign countries is legal currency, as well as traditional financial assets denominated in legal currency, such as money market funds, commercial paper, corporate loans, treasury bonds, large-denomination certificates of deposit, etc. Digital assets mortgaged by fiat currencies such as USDT and USDC are regarded as sovereign national credit.
Physical assets
: Precious metals and physical commodities that can be delivered, such as gold, silver, oil, natural gas, etc.Digital assets: Decentralized digital currencies with a certain market value and liquidity running on the blockchain, as well as derivative tokens and interest-earning assets that can be exchanged for digital currencies, such as BTC, ETH, WETH, etc.

prospective digital assetsDue to the different volatility and liquidity of various assets, different asset ratios have different solvency. The mortgage rate needs to adapt to the selection and proportion of assets. On the whole, the mortgage rate of high-volatility assets is high, and the mortgage rate of low-volatility assets is low. Since most stablecoin projects are not a single asset, it is very important to adjust the asset ratio and choose an appropriate mortgage rate.

The capital structure is very important, it can reflect the solvency of the project, its ability to withstand pressure under extreme market conditions, and support for expectations.

secondary titledebt

The liability side is all outstanding purchasing power issued by the stablecoin project, which is the sum of the value of all stablecoins in circulation

. Liability structure includes liability scale and circulation distribution.Liabilities are stablecoins in circulation. For a stablecoin project, how to expand liabilities, which protocols can be accessed, risk geometry, how to balance the debt repayment structure, how to stabilize the speed of liability expansion and the structure of the liability side are all issues. is something to consider.

The scale of liabilities is easy to check. The data on the chain can be traced and traced, and the distribution of stable coins can be accurately seen. However, since the development of DeFi is still in its early stages, a large number of chip exchanges are still concentrated on centralized exchanges, and some centralized protocols will also absorb stable coins. Therefore,. Although the circulation distribution cannot be accurately obtained, the abnormal changes of a certain agreement and the extremely unbalanced ratio structure can be captured. Through early warning, the source of risk can be predicted, and timely adjustment can avoid risks.

fluidity

secondary titlefluidity

Liquidity refers to the difficulty of cashing out stablecoins

. Liquidity management includes stabilization mechanism and liquidity allocation. The extreme stress test can predict the scale of a run that a stablecoin project can withstand under extreme circumstances.
Innovation in liquidity was the focus of the stablecoin project in the last period. Various stablecoin mechanisms were developed and put into experiments. These projects provide valuable experience and data for latecomers, especially the debacle of Luna. We believe that in terms of stabilization mechanisms, they can be divided into two categories:

One-to-one fiat currency settlement: In theory, users will automatically mint and destroy Tokens when depositing and withdrawing funds. In practice, they will mint and destroy Tokens in batches in a buffered manner. Fiat currency collateral projects such as USDT and USDC use this method.
Calculation stability mechanism: Calculation stability mechanism emerges in an endless stream. In practice, the mainstream ones are as follows:
Seigniorage stock mechanism: The value of stablecoins in the protocol is fixed and can be exchanged for native tokens of equivalent projects. Stabilize market prices through arbitrageurs.

Over-mortgage liquidation: Deposit collateral into the agreement according to the over-collateralization rate, and liquidate when a certain ratio is reached.

There are two main types of liquidity allocation. Allocation to arbitrageurs or the agreement directly interacts with the trading pool. Relying on the market behavior of arbitrageurs can improve efficiency, but facing the risk of losing control under extreme market conditions, direct additional issuance by the agreement will face security risks and efficiency issues.

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scenes to be usedThe usage scenario is the crux of all current stablecoins and the source of expansion of stablecoin projects. The demand for stablecoins fundamentally comes from usage scenarios. The current penetration rate of traditional payment scenarios is low, but we can focus on the future.Sovereign countries issue currencies with their own usage scenarios,

Commodity transactions, settlements, and credit expansion within a country are all guaranteed by legal coercion and government coercion

We believe that the stablecoin project can be connected to a certain subdivision scene first, and then expand, and the biggest historical opportunity in the future lies in the value exchange of the virtual world. With the development of DID, Gamefi, and metaverse, the usage scenarios of stablecoins will be outbreaks, and these scenarios are unfamiliar battlefields for fiat currencies.。

USDT

💡 USDT has a market value of more than 80 billion U.S. dollars and is the largest stable currency project, but its asset structure has been criticized by many companies. What is its asset structure, and can it withstand a run on it?

assets

assets

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features

Data source: Tether Transparency May 10 2022featuresOn the whole, USDT assets are almost all denominated in legal currency, and legal currency represents the credit of a sovereign state. But from a structural point of view, there are differences in subdivided assets, liquidity, quality, etc.U.S. Treasury bonds, cash, and money market funds are the most liquid parts, which account for about 50% of total assets, the yield is relatively low, but the quality is the highest. The other parts are used by Tether to make profits, and the liquidity and security are slightly lower. of the overall assets,

The riskiest are commercial paper

Tether's asset structure has changed a lot compared to 21 years. The biggest change is that the proportion of commercial paper has dropped significantly, from 60% to about 30% now, and more of it has been replaced by government bonds and money market funds.。

asset analysis

The mortgage rate of USDT is 100% mortgaged by legal currency, which is a fully mortgaged stable currencyasset analysisIt holds relatively high-quality assets in traditional finance. While maintaining asset liquidity, it can take advantage of the mature market of traditional finance to continue to bring benefits

, this part can fully support the entire team. But Tether’s biggest risk also lies in its centralized management and asset thunderstorms. We can see that commercial paper, investment, loans, and corporate bonds, these risky assets, account for a total of 47.14% of the total assets. In times of liquidity crisis and local credit crisis, the risk of insolvency becomes higher. Moreover, Tether has not disclosed the bad debt rate of its high-risk assets, etc., which is somewhat opaque.

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debt

liability structure

Tether's liabilities are mainly USDT in circulation. Among them, USDT issued on TRON and ETH accounts for the most, accounting for about 90% of the total. These liabilities exist in exchanges, smart contracts and personal wallets in various forms.Liabilities Analysis, Therefore, such a liability structure requires Tether to do a good job in liquidity management and provide sufficient liquidity.

fluidity

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fluidityThe stability mechanism of USDT is one-to-one settlement with legal currency

,As shown below. But in terms of specific operations, Tether does not issue USDT continuously, that is, there is a time lag between when Tether receives the payment and when it issues new USDT. Mining USDT usually involves casting a large amount of USDT at one time, and the issuance also needs to go through an authorization process.

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Source: Tether Whitepaper

The process of USDT redeeming fiat currency, for Tether, is the process of responding to user withdrawals. Tether responds to withdrawals, first of all through its most liquid assets, bank deposits and monetary funds, this part is about 10%, which can meet a large number of short-term withdrawal needs, and secondly, the liquidity of US treasury bonds is slightly less liquid, this part accounts for about 40% , Under extreme market conditions, there is a risk of asset depreciation in the face of a market liquidity crisis. Other assets have poor liquidity and are difficult to realize in the short term. Secondly, Tether has also set up a shareholder capital buffer to deal with a large number of short-term withdrawal needs, which is about 160 million.

In terms of liquidity distribution, Tether directly distributes liquidity to users who make deposits through its contracts. New tokens are issued to the market in this form. Tether has a USDT buffer. When USDT is insufficient, new USDT will be minted and put into the market superior.Liquidity extreme stress testCan basically handle the $44 billion redemption scale in the short term

. Superimposed panic factors, there has never been a run of more than 50% in history, so it can be considered that USDT can maintain sufficient liquidity under extreme market conditions.

secondary titlescenes to be usedThe biggest usage scenario of USDT is digital currency transactions. According to data from the data analysis platform Nansen,, including six centralized exchanges and one DEX (Curve), while USDT’s performance in other scenarios other than digital currency transactions is weak, especially in DeFi applications, which is significantly lower than USDC.

USDC

💡After the impact of Luna, USDC is one of the few stablecoins whose market value has increased, and has absorbed a large number of USDT exchanges. How is its asset structure different from USDT, so that people will not doubt its stability?

assets

assets

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Data source: Circle Management Assertion Report May 2021texttext

features

featurestextThe asset characteristics of USDC are

, high-risk corporate bonds and commercial paper accounted for only 14%. Part of Circle's investment business is implemented by its holding SeedInvest, which uses USDC to invest in projects.。

asset analysis

The mortgage rate of USDC is 100% mortgaged by legal currency, which is a fully mortgaged stable currencyUSDC's high proportion of cash assets enables it to cope with a large number of short-term withdrawal needs, which helps to stabilize expectations and prevent runs, and the asset structure is relatively reasonable. There may be very little liquidity crisis in USDC, because its cash ratio is much higher than that of commercial banks, and it can cope with a large number of cash withdrawal needs in a short period of time. But at the same time,。

Circle's asset structure is not regularly disclosed, and it still faces problems in transparency, which is unavoidable for centralized stablecoin projects

secondary title

debt

liability structure

The current circulation of USDC is about 50 billion U.S. dollars, which exists in exchanges, smart contracts and personal wallets in various forms. However, USDC and USDT are structurally different. USDC’s locked positions in major DEXs It is about 2 billion, which is 1.5 times that of USDT. In mainstream lending agreements such as AAVE and Compound, the circulation of USDC is more than 4 billion, which is more than twice that of USDT., which will put less pressure on USDC to honor its liabilities. Liquidity management is also less stressful.

fluidity

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fluidityliquidity management

The stable mechanism of USDC is one-to-one settlement of legal currency

. Similar to USDT, USDC also has a buffer mechanism, and new USDC will be issued at intervals.

Liquidity extreme stress test

USDC has a strong ability to deal with extreme market conditions, and can withstand a selling pressure of more than 30 billion U.S. dollars in a short period of time. This has never happened in history. It can be considered that USDC's liquidity pressure is very strong. The main risks of USDC come from undisclosed changes in asset structure, the possibility of a reduction in the proportion of cash assets, audit fraud, and the extreme global financial crisis.

secondary titleUSDC has seized the historical opportunity and has been widely used in transactional scenarios. It is also widely used in DeFi protocols, and the adoption rate is more than double that of USDT.

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UST

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assets

assets

text

asset structureThe reserve asset of UST is Luna. At the beginning of 2022, Terra will start buying $BTC and $AVAX as its reserve assets. But compared with the market value of Luna and UST, the market value of BTC and AVAX is not high. UST's reserve assets are mainly Luna.Because UST has suffered an anchor recently, Luna has also been reset to zero,

Let's take Terra's asset status on May 6 as an exampletext。

features

text

asset analysis

Terra's assets are very characteristic. Its UST market value is basically supported by Luna, an expected asset. Luna's transaction price is formed by the market and fluctuates greatly. In the last round of bull market, Luna's market value has always exceeded UST , reflecting the expected premium for Luna.Luna's market cap is backed by expectations

therefore,, it is undeniable that in the process of previous expansion, Luna also experienced short-term UST unanchoring and falling, but finally returned to anchoring through the arbitrage mechanism, established a certain degree of market confidence, and even stepped out of the UST market with a large premium . But the risk is that reserve assets are too affected by expectations and are highly volatile. Although the team realized this and began to introduce reserves such as BTC, extreme market conditions have already occurred before the ratio of Luna has dropped. In extreme market conditions, Luna will experience a liquidity crisis and face the risk of a sharp decline in market value, leading to a death spiral.When the risk of a run actually occurs, Terra's reserve assets are not the $30 billion on paper

, but the real realized value, but this value is unknown. Judging from this crash, Luna’s short-term full realization (two days) can really realize the value of less than 2 billion US dollars.

debt

liability structuretextAmong them, the Anchor protocol absorbed a large amount of UST, as high as 14 billion US dollars on the 5.6th.

Liabilities Analysis

texttext, Such a structure leads to much greater pressure on Terra's debt growth. Nearly 75% of the debt is absorbed by this fixed-rate agreement, so liquidation and selling pressure in extreme cases are huge risks. However, Terra's liabilities are all denominated in UST. As long as extreme market conditions do not occur, it can be continued on a rolling basis. However, in extreme market conditions, the scale and liquidation point of this part of liabilities are worth noting.

fluidity

secondary title

liquidity management

Terra's stabilization mechanism is shown in the figure below. Terra provides quotations through its internal oracle system. Inside the oracle, the price of UST is constant at $1. When there are too many USTs in the market, the market price of UST is less than $1, and arbitrageurs will buy UST in the market. It is sold at a price of $1 in the agreement, and at the same time, the agreement mints Luna of equivalent value according to the market price of Luna, and the arbitrageur sells Luna in the market to complete the arbitrage. During this process, the circulation of UST will gradually decrease through the arbitrage mechanism, and the price of Luna will temporarily drop. And vice versa.

image descriptionAccording to the Terra white paperIt can be seen that throughout the process,

Terra actually distributes liquidity to arbitrageurs, relying on arbitrageurs to absorb and release UST, and Terra's daily arbitrage limit is 300 million US dollars, that is to say, Terra can absorb or release a maximum of 300 million US dollars of liquidity per day. Terra's mechanism can make the native token Luna absorb the issuance value of UST, that is, the seigniorage income. Theoretically speaking, as the demand for currency in the market becomes higher, the circulation of UST will increase through the release of arbitrageurs, and the value of Luna will increase accordingly. When the demand for currency in the market decreases, the circulation of UST will decrease through the recovery of arbitrageurs. The value of Luna decreases accordingly.

In extreme market conditions, both UST and Luna are sold out, and the market value drops. Luna is affected by expectations and arbitrage selling pressure, and the market value of Luna may be lower than UST, which further stimulates market panic and sells UST, forming a death spiral.

Liquidity extreme stress testIn extreme market conditions, from the perspective of assets, the assets that Terra can use include Luna (Luna held by LFG), BTC, etc., as well as arbitrageurs in the market. Under extreme market conditions, arbitrageurs will sell Luna crazily. Judging from the market starting on 5.9, too much short-term selling of Luna will cause a liquidity crisis and the market value will drop rapidly. That is to say, the market value of UST is 50% higher Luna, the real redemption value in the short term is not much, in fact,。

Only supports less than 2 billion UST exchange

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MIM

💡Different from UST, MIM's asset structure is more reasonable. The reserve assets are completely native digital currency assets, which are crypto native stablecoins, but the mortgage rate selection is low, limited by the immaturity of the DeFi market, and there are still some risk factors.

assets

secondary title

asset structure

features

features

asset analysis

An obvious feature of MIM's reserve assets is the high proportion of long-tail assets. MIM is a stable currency that provides liquidity for these assets, and is essentially a lending agreement. Through the pool in Curve, MIM can be exchanged for stable coins with better liquidity to realize its purchasing power.asset analysisMIM's asset selection is interest-bearing assets, to provide liquidity for these assets. These assets are Defi native assets, which are different from USDC and USDT, which rely on traditional financial markets to earn interest.While Abracadabra provides liquidity for these assets, it will extract part of the interest as agreement income, which is a sustainable business modelThe mortgage rate is about 110% to 130%

, the mortgage rate is relatively low, and large fluctuations may cause unanchoring.

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liability structure

image description

Liabilities Analysis

The pool on Curve has a liquidity of 230 million, accounting for about 10% of the total circulation. The pool's 30-day transaction volume is 11.2 billion US dollars, almost all reflecting the liquidity of MIM.

fluidity

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fluidity

liquidity management

Liquidity extreme stress test

The risk of MIM is that under extreme market conditions, the value of mortgaged assets will be greatly reduced, and the mortgage rate of MIM is relatively low, and the funds in the treasury are less than 1% relative to the circulation. Therefore, under extreme market conditions, it faces the risk of breaking the anchor.

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Float

💡 Float crosses the US dollar peg and wants to directly achieve stability in purchasing power. It is an interesting idea, but its asset structure is unreasonable, reserve assets are constantly being lost, and usage scenarios are scarce.

assets

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asset structure

features

features

asset analysis

The characteristic of Float reserve assets is that there are only two assets, WETH and Bank. The ratio of these two assets can be adjusted through the agreement. At present, the address of the reserve asset has 1.14 million US dollars worth of WETH, and Bank will be issued when deflation occurs. to absorb selling pressure.

asset analysis

liability structure

image description

Data source: Nansen

Float's liability structure shows that it does not have many usage scenarios and its liquidity is relatively poor.

fluidity

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liquidity management

The core innovation of Float is the stabilization mechanism. The concept of Float is shown in the figure below. First of all, Float is not anchored to the US dollar, but the target price, which is affected by the price of ETH. The stability mechanism of Float relies on arbitrageurs. When the market price of Float becomes lower, arbitrageurs can buy Float in the market and then sell it in the agreement for arbitrage, and the reverse is the same.

Source: Float Protocol official documentation

text

text

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text

DAI

💡DAI has always been known as "the most stable decentralized stablecoin". What kind of asset structure and diversity keeps the price of DAI anchored?

assets

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asset structure

image description

features

features

asset analysis

asset analysis

The collateral behind DAI is selected by the diversity of assets, the average daily transaction volume of millions of dollars, and the relative stability of each token, mainly ETH and BTC, and the mortgage rate is around 150%. It was not until the deployment of Curve 3pool that the volatility of DAI was effectively managed, and holders also had more liquidity options.

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liability structure

At present, the total circulation of DAI is about 6 billion, of which about 3.5 billion are in the external address (EOA), 720 million are locked in the cross-chain bridge, 550 million are in DEX, and 590 million are in the lending agreement.

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Liabilities Analysis

Data source: Dune Analytics

fluidity

secondary title

liquidity management

As a multi-collateralized and over-collateralized stablecoin, DAI is mostly a mainstream reserve asset with high liquidity, which is sufficient to support users to redeem collateral and avoid runs and liquidations caused by violent market fluctuations.

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Liquidity extreme test

We can speculate that under extreme market conditions, when the value of mortgage assets shrinks sharply, DAI still has Peg Stability Module (PSM) and Curve 3pool as the core of its guaranteed anchor value.

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FRAX

💡Compared to UST, the growth of FRAX, which is also "steady", is relatively stable and healthy. The flywheel design that absorbs volatility by a small proportion of FXS seems to be very effective at present, and FRAX is also making full preparations for the expansion of multi-chain pricing.

assets

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asset structure

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features

features

asset analysis

asset analysis

Frax Finance achieves a flywheel effect by absorbing the volatility pegged to the US dollar through its native token FXS. Both stablecoin collateral and FXS are used by AMO to accumulate protocol income, and its income is also used to support the non-full mortgage part and feed back FXS holders. In addition, FRAX can not only earn income by using Curve AMO, but also greatly increase the liquidity of FRAX and strengthen its anchoring with the US dollar, achieving an effect similar to that of the central bank intervening in the market to maintain price anchoring.

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image description

Source: Dune Analytics

Source: Dune Analytics

FRAX has about 1b liquidity on Curve, accounting for more than 70% of the circulation, and the 30-day trading volume is nearly 100 billion U.S. dollars, with high liquidity and demand. Based on the current CR of 89%, the current liability structure is basically healthy.

fluidity

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fluidity

First, FRAX uses a two-way arbitrage mechanism to maintain its anchor. For example, if the CR is 85%, then minting 1 FRAX requires depositing USDC of 0.85 USD and FXS worth USD 0.15. As the growth rate increases, it means that the liquidity of FXS has increased relative to the supply of FRAX, and more FRAX can be redeemed, with a small percentage impact on the supply of FXS. Thus, the system can absorb more FXS sell pressure from FRAX redemptions without risking a negative feedback loop and CR will decrease.

Liquidity extreme test

Similarly, under extreme conditions, the market value of FXS will plummet, and CR will rapidly soar from a lower percentage to a higher percentage, triggering a run. A certain percentage of FRAX holders may then withdraw all collateral from the system through redemption, and the remaining holders will hold undercollateralized FRAX. But FRAX's CR is not designed to fluctuate quickly, so there will be no situation where the CR greatly exceeds the actual percentage of collateral in the system. Furthermore, this divergence typically occurs during periods of sustained growth in demand for FRAX, and FRAX still has sufficient liquidity to support an outright exit of a FRAX position.

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FEI

💡 The core of FEI is very similar to DAI, but the asset structure is relatively single, and the usage scenarios are more scarce.

assets

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asset structure

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features

features

asset analysis

asset analysis

The current system mortgage rate of FEI is 175%, which is higher than that of MakerDAO.

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liability structure

At present, FEI is about 530 million in circulation. Among them, nearly 60% are owned by the agreement, and 40% are externally circulated.

image description

Liabilities Analysis

Source: Fei Protocol official website

fluidity

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fluidity

liquidity management

Liquidity extreme test

If the treasury does not exit the FEI position, FEI has 100m of liquidity in DEX to deal with the run, and the 175% mortgage rate is enough to maintain FEI's collateral payment, and FEI will not break the anchor for a long time.

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AMPL

💡 Ample Forth is the first to introduce the rebase mechanism, using supply and demand to regulate currency circulation, and then relying on the arbitrage behavior of arbitrageurs to drive the currency price to fluctuate in the direction of $1, but the method is too simple and rude, when the downward pressure is too great , the liquidity is squeezed dry in a short time.

assets

There are no reserve assets.

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liability structure

Currently 77m in circulation, created out of thin air.

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After entering the underwater death spiral, the market value and circulation will go down at the same time, and the rights and interests of holders will be infinitely diluted.

fluidity

secondary title

fluidity

liquidity management

AMPL uses Rebase to maintain the price anchor. When the market price of stablecoins is less than the target price (1 USD in 2019), the agreement will reduce the number of stablecoins held by all users in the system year-on-year; conversely, when the market price of stablecoins is greater than the target price, the agreement will increase the The number of stablecoins in the hands of all users in .

Liquidity extreme test

Liquidity will be drained when all holders sell. The regulation of supply is straightforward and crude, ignoring the influence of more complex factors, such as market environment and psychological factors.

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ESD

💡 The most important innovation of ESD is the introduction of the two important macro-control measures of agreement equity and bonds. However, due to the lack of collateral support in the system, the expected net present value cannot support the value of agreement shares for a long time.

assets

There are no reserve assets.

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debt

The current price of ESD has reached zero, so the debt is also zero.

fluidity

Compared with AMPL, the most important innovation of ESD is the introduction of the two important macro-control measures of agreement equity and bonds. Although the second-generation Rebase will still adjust the total supply globally by smart contracts, it will only be used in deflation, and the additional stable coins will be distributed to the agreement stock holders to enjoy the minting rights. In the face of inflation, the agreement is to reward users with preferential sales of stocks to actively destroy the stablecoins in their hands to form arbitrage opportunities, which is quite different from AMPL users who passively accept the increase or decrease in the supply of stablecoins.

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horizontal comparison

in conclusion

in conclusionHow to choose reserve assets is crucial
: For a stablecoin project, the first thing to consider is how to choose reserve assets. The new stablecoin project seems to reject sovereign currencies endorsed by the credit of sovereign countries as reserve assets, but not choosing legal currency does not mean going One of the manifestations of centralization and decentralization should be that no one subject can misappropriate the reserve assets of the project itself at will. Therefore, at the moment, it is a good choice to choose fiat currency as a reserve asset. The reason is that fiat currency can be easily connected to the traditional financial market, and the accumulated funds can easily find low-risk sources of income. Looking for reserve assets in the digital currency market, you still have to choose assets with high liquidity, high market value, and low volatility. MIM provides a direction to use interest-earning assets as reserves, but interest-earning assets are still immature.The choice of mortgage rate is equally important. The collapse of UST shows us that for stablecoin projects that use prospective assets as reserve assets, the market value of native tokens must be at least 10 times higher than that of stablecoins in order to cope with extreme market fluctuations.。
Assets with higher volatility should correspond to higher mortgage rates. Between capital efficiency and stability, priority should be given to ensuring stabilitytextFor projects that rely on arbitrage, the arbitrage mechanism may fail under extreme market conditions, and relying on the protocol itself to manage liquidity is inefficient.
Combined with the asset side, which assets are used to deal with cashing out, and what ratio to choose. The design of the current stablecoin project’s stabilization mechanism is similar, essentially all are recovering and releasing currency in the market through some form in time and space.textThe application scenario that digital currency is naturally suitable for is the virtual consumption scenario. With the emergence of consumption scenarios such as NFT, Gamefi, and Metaverse, there are huge historical opportunities in front of stablecoins, and digital currency has natural advantages in the payment of virtual scenarios.
. A historical opportunity for digital currency transactions supported USDT and USDC, and a historical opportunity for DeFi supported DAI. What kind of stablecoin projects will be catalyzed by the next historical opportunity is worth looking forward to.Unsecured stablecoins have proven unable to support their debt issuance for a long time, and will eventually turn to fully collateralized stablecoins.

Reference：

stable currency

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