Alternatives: Existing Stablecoins

How to achieve scalable dollar product via derivatives

Existential Importance to the Space

Stablecoins are the single most important instrument in crypto. All major trading pairs across spot and futures markets in centralized and decentralized venues are denominated in stablecoin pairs with 90% of orderbook trades and >70% of onchain settlements being stablecoin denominated. Stablecoins settled $8.5 trillion onchain in just Q2 2024, constitute some of the largest assets in the space and are by far the most utilized assets across decentralized exchanges and money markets.

Stablecoins are not only the foundation of the entire industry, but are also arguably the only crypto asset to have (i) found true product-market fit globally with more than 100m users, (ii) the largest addressable market, and (iii) the greatest potential for revenue generation.

Centralized Challenges

Stablecoins solely dependent on traditional financial infrastructure, such as USDC or USDT, provide stability and capital efficiency, but they introduce:

Unhedgeable custodial risk with all of the backing in bond collateral in regulated bank accounts which are prone to censorship.
A critical reliance upon the existing banking infrastructure and country-specific evolving regulations.
A "return-free" risk for the user as the issuer internalizes yield generated utilizing backing assets whilst externalizing the risk of depeg to users.

Decentralized Fragility and Lack of Scale

"Decentralized" stablecoins - those with designs not incorporating or relying on traditional banking or financial infrastructure - have historically experienced a number of issues relating to scalability, mechanism design, and a lack of incentives to users.

"Overcollateralized stablecoins" have historically experienced issues scaling as their growth was inexorably tied to the on-chain growth in leverage demand for Ethereum. Lately, some stablecoins have resorted to onboarding Treasuries in an effort to improve scalability, at the cost of censorship resistance.
"Algorithmic stablecoins" have faced challenges with their mechanism design which were found to be inherently fragile and unstable. Such designs are unlikely to be sustainably scalable.
Prior "delta-neutral synthetic dollars " struggled to scale due to a critical reliance on decentralized trading venues that lack sufficient liquidity and are exposed to smart contract exploits.

The Solution is Now Possible

Through the use of derivatives we can create a native form of money that can provide a scalable alternative to the existing centralized and decentralized offerings.

Last updated 3 months ago

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Existential Importance to the Space

Centralized Challenges

Stablecoins solely dependent on traditional financial infrastructure, such as USDC or USDT, provide stability and capital efficiency, but they introduce:

Unhedgeable custodial risk with all of the backing in bond collateral in regulated bank accounts which are prone to censorship.

A critical reliance upon the existing banking infrastructure and country-specific evolving regulations.

A "return-free" risk for the user as the issuer internalizes yield generated utilizing backing assets whilst externalizing the risk of depeg to users.

Decentralized Fragility and Lack of Scale

"Overcollateralized stablecoins" have historically experienced issues scaling as their growth was inexorably tied to the on-chain growth in leverage demand for Ethereum. Lately, some stablecoins have resorted to onboarding Treasuries in an effort to improve scalability, at the cost of censorship resistance.

"Algorithmic stablecoins" have faced challenges with their mechanism design which were found to be inherently fragile and unstable. Such designs are unlikely to be sustainably scalable.

Prior "delta-neutral synthetic dollars " struggled to scale due to a critical reliance on decentralized trading venues that lack sufficient liquidity and are exposed to smart contract exploits.