USDT and other U.S. dollar stablecoins have become U.S. financial settlement infrastructure

Recently, a circle of news has aroused heated discussion among people. I believe that when I look back at the end of the year, the importance of this news can definitely rank among the top ten news in the circle of 2021.

“On the evening of January 4, the largest banking regulatory agency in the United States, the Office of the Comptroller of the Currency (OCC) of the U.S. Department of the Treasury issued a document on its official website to allow U.S. banks to use public blockchains and USD stablecoins as the settlement infrastructure in the U.S. financial system. .”

It is said that due to the huge amount of visits, the official website was once paralyzed. Regarding this news, we can make the following three interpretations:

1. The “USD stablecoin” referred to in the article refers to a stablecoin that has been reviewed and approved by the regulatory authorities and accepted its continuous supervision. Mainly include USDC, GUSD, PAX, etc. USDT is not good, and DAI, which is native to the blockchain, is definitely not good.

2. The public blockchain here will most likely not be Ethereum, but a consortium chain with access mechanism. Any user’s real name, anti-money laundering, anti-terrorist transmission and other regulations must be met.

3. It can be seen that China and the United States have different ideas about digital currencies. It can be seen from CDBC that we use the top-level design of the central bank more to promote the development of digital currencies from the top down, while the United States is more of a “bottom-up” approach led by major financial institutions. At present, each has its own strengths, and it depends on time to test which is better.

But in any case, the OCC official announcement has completely raised the height of stablecoins to a new level. The biggest hot spot in the blockchain industry in 2021 may be on stable coins. This can be seen from the fact that dozens of algorithmic stablecoin projects that have been extremely popular recently have been launched online.

So let’s list the development context of stablecoins so far, and the development direction currently visible.

2013-2017 pre-stable coin era

The foreign friends and the old iron who entered before 2018 should be familiar with this term. Yes, before 2017, stablecoins weren’t there at all. It can be said that there is no sense of existence.

You may be wrong, USDT was released in 2015.

That’s right, but you have to know that the rise of USDT started with the support of the three major players in the second half of 2017, and what was before that.

In the pre-stable currency era, Bitcoin was the “exchange medium” for all currencies, and foreign compliant trading platforms have always supported direct recharge and purchase of legal currency.

2017-present fiat currency mortgage stable currency era

Tether USD is the full name of USDT, and its Chinese name is TEDA Coin. Tether, the issuer, listed USDT on Bitfinex and Poloniex in 2015. As a stable currency, Tether promises that every USDT has one dollar worth of cash or equivalent to support the value of USDT.

USDT became popular after the three major trading platforms launched USDT and opened USDT trading pairs in the second half of 2017.

In the first half of 2017, USDT only printed more than 10 million. At the end of 2017, it quickly increased to 1 billion. Now look back at the wave of mad cows at the end of 2017, do you know how it got up? BTC’s soaring sky at the end of 2017 has a great relationship with USDT’s crazy printing.

USDT has experienced multiple credit crises in the past few years. Users are mainly worried about whether there is a sufficient 1:1 USD deposit in TEDA Bank and compliance issues, but they have basically gone through it smoothly every time.

Now that it has issued 200 billion U.S. dollars in scale, it will continue to occupy the top spot in stablecoins. From the earliest BTC chain, it has gradually expanded to multiple chains such as ETH, TRX, Algorand, and OMG.

Later, everyone saw business opportunities in the stablecoin market. Major institutions issued their own stablecoins. For a time, various USDX occupied people’s vision, including the current second largest USDC, and later TUSD, PAX, and GUSD. …

So far, USDT is undoubtedly the best in the circle. The trading platform supports trading pairs, the issuance scale, and the number of public chains are huge advantages. In terms of outsourcing, the best one is USDC, which has strict audits and fully complies with supervision…

Circle, the issuer of USDC, even reached a partnership with Visa last month. Maybe sometime in 2021, Visa will issue a credit card that allows companies using the credit card to send and receive USDC payments directly.

2018-present cryptocurrency mortgage stablecoin era

Cryptocurrency-collateralized stablecoins are basically DAI alone. Although there are many other projects that try to copy or improve MakerDAO, so far, it can be said that there is no project to achieve even the slightest threat to DAI. USDX is far from the threat of USDT.

In the field of cryptocurrency mortgage-based stablecoins, if you understand DAI, you basically understand all the stablecoins of this type.

It is completely different from the style of currency backed by a centralized institution such as USDX and the US dollar. DAI is basically supported by ETH (now DAI can have multiple encrypted collaterals, including BAT, OMG, etc., for simplicity, we use The first single mortgage ETH is introduced).

Maker relies on the game between ETH mortgage and arbitrageur to achieve relatively stable prices. For example, if you mortgage 1 ETH and open a CDP (Debt Mortgage Position), you receive 700 DAI for an ETH 1000 USD. If you want to get back your 1 ETH in the future, you will have to repay 700 DAI.

If the price of DAI drops to US$0.9, CDP owners can buy 700 DAI for US$630 to repay the loan and make a net profit of US$70. If the price of DAI rises to US$1.1, then users can directly sell 700 DAI in their hands for 770. US dollars, the same profit is 70 US dollars.

However, DAI has several problems:

1. The capital utilization rate is not high. Because the anchor is ETH instead of U.S. dollars, and the price of ETH itself fluctuates greatly, it can only be over-collateralized, resulting in a capital utilization rate of only about 60-70%, which limits the utilization rate of funds. This is also the birth of Lien and others to improve capital utilization The direct cause of the rate of stablecoin projects.

2. The arbitrageur game model mentioned above is actually not always so effective because of the existence of overcollateralization. Because USDT maps the US dollar 1:1, the arbitrageur game model can work perfectly, which is why the fluctuation of DAI is much greater than that of USDT. The expansion of this topic is completely the length of a whole article, so I have covered it here.

3. When ETH plummets, the clearing system is affected by the current ETH performance, which is prone to problems. In the case of 312, the price of Black Swan ETH plummeted in an instant, which led to a lot of 0 yuan winning bids in the liquidation. As a result, the Maker system had bad debts, and the gap was more than US$500 W. Later, Makerdao had to issue additional MKR to repay the debt.

Due to the existence of these several reasons, although DAI is absolutely No. 1 in the cryptocurrency mortgage stable currency, it is also difficult to expand. In a few years, there is only a total issuance of several billions of dollars, which is similar to that of USDT. Ten billion stablecoins still have a magnitude gap.

2020-present algorithmic stablecoin era

Regarding this track, it has almost entered the second half. For the summary of the first half, please look back at the article a month ago, “During the endless and rapid evolution of DeFi, the skyrocketing algorithmic stablecoins are just a few people’s carnival? “.

In the past month or so, Basis, the leader in the third-generation algorithmic stablecoin, has seen dozens of imitation disks, and has expanded to the Huobi public chain, TRX, and the Binance smart chain, showing how popular it is. So here is the next article, to write about the current stage of the algorithmic stablecoin.

Note: The following mentioned algorithmic stable currency projects are examples and do not make any suggestions. The risks are relatively high at present, so do not blindly follow the trend.

1. Three generations: Basis, Mith, Onecash

Among the Basis and dozens of imitation discs, these three are the most worthy of writing.

Basis: Three generations of originality. After experiencing explosive growth, it has reached a market value of nearly 100 million. In recent days, it has come underwater (underwater means BAC<1 US dollars) and has begun to withstand the test of the “death spiral”. Tens of millions of debts, even if they come out of the water (when they come to the water, that is, BAC>1 U.S. dollars), they are likely to be brought back underwater quickly by debts. The situation is not optimistic.

However, as an original, Basis is still the most promising of the three generations, because the world of blockchain has rich rewards for the first original on any track. If the three generations of algorithmic stablecoins are falsified as a whole, then Basis should also be the last to fall.

Mith: Basis high imitation, without any changes, pure high imitation. At first, the text on many pages was still BAS, but it was found and posted by sharp-eyed users, which became a joke for the entire network.

However, the creator of the Mithril coin is Huang Licheng, the creator of Mithril coins, and he is called Big Brother Ma Ji, and the insider is called “Old Huang”. He has strong funds and extensive contacts in the circle. Mith basically relies on his big brother and a few big funds like SBF. Directly held up, the market value is close to Basis, and the three generations who do their part are ranked second. Recently, like Basis, they are also undergoing underwater tests.

Onecash: Basis has the most original projects in many imitations, including Rebase’s 10% limit, Boardroom’s new LP pool, and the original liquidity design of the bond system, which has effectively improved many defects in the original design of Basis.

Because of the 10% additional issuance design, the market value has grown slowly, and it is still only over 1 million. It is currently one of the few Basis imitation projects that remain on the water.

2. Fourth generation (that is, part of the mortgage algorithm stable currency): Frax, XUSD

Frax: Similar to Token, it is also a three-currency model, FRAX (stable currency), FXS-Frax Shares (governance and value accumulation token), Frax Bonds (debt financing token).

The difference is that without Rebase, Frax is 100% mortgage USDC to mint at the beginning. As time goes by, part of USDC + part of FraxShares (FXS will be destroyed) x Share will be used when casting Frax. Generated by Frax Share mortgage, complete the transition to a pure algorithmic stable currency.

The method of maintaining the stability of Token price is similar to that of DAI, which is through the difference between the price and $1, and the arbitrageur fills in the price difference. I will not describe too much here.

XUSD: Frax imitation disk, the difference is that it is Fair Launch, unlike Frax which has private equity

3. Five generations: StableCredit? A new project from the first four generations of Yu Dacheng?

AC recently made a comeback, and then announced a Wyfi, leading to the direct price of YFI.

To put it simply, the StableCredit loan + stablecoin that AC wants to do is a combination of “Everything can be MakerDao + part of the mortgage stablecoin. What’s great is that everything can be mortgaged like MakerDao to obtain stablecoin.

At the same time, these mortgaged Tokens will enter the AMM pool to form a “various Token: StableCreditUSD” lending pool, which opens up the interoperability of Swap and borrowing. It will not be as liquidity as the current assets in different projects such as Uniswap and AAVE. The problem of severe fragmentation, capital efficiency has always been a problem that AC is most concerned about.

At the same time, Wyfi was introduced, similar to Frax Share in Frax. Not only can you get 50% of the profit of the stable currency in the entire system, but you can also burn Wyfi to cast StableCreditUSD when the price of StableCredit USD is greater than $1, thereby arbitrage and stabilize the price of StableCredit USD.

WYFI is generated by YFI 1:1000 and is irreversible, so it is a big plus for YFI with deflationary function. In other words, is it possible that a project will appear in the market in the future that will combine all the features of stablecoins before?

For example, it supports USDC’s static mortgage, ETH’s dynamic mortgage + elastic Rebase, just like USDC+MakerDAO+Basis. If there is such a project, whether you participate or not, I think it’s always right to understand it the first time.