Background
DeFi has truly transformed the crypto world, changing how we exchange, store, and use value in a trustless way. Central to this change are stablecoins. They are the backbone of all on-chain activity, driving trading, lending, and settlements on both decentralized and centralized platforms.
In Q2 2024 alone, stablecoins powered over $8.5 trillion in on-chain transactions. They accounted for over 90% of order book trades and 70% of all settlements. This clearly shows they are the most used assets in both DeFi and CeFi, connecting volatile crypto with real-world uses.
Despite their crucial role, stablecoins face major hurdles in achieving true decentralization and scalability.
Challenges of Existing Stablecoins:
Fiat-backed Stablecoins (e.g., USDC, USDT):
They lead the market with stability and efficiency but rely on traditional banks.
This brings significant problems: custodial risks (money held in regulated accounts), exposure to government censorship, and a "return-free" setup where issuers keep the yield from backing assets, while users bear the risk of depegging.
Recent collapses of centralized firms, causing over $15 billion in losses, highlighted how fragile this centralized reliance can be.
Decentralized Alternatives:
They haven't found the right balance between stability and scalability.
Overcollateralized stablecoins (often requiring 150% or more in collateral, common on Ethereum) are capital-inefficient. Their growth is tied to the demand for on-chain leverage. While secure, this limits their ability to grow into billions without tying up huge amounts of capital.
Algorithmic stablecoins, built without external backing, have proven unstable time and again. They often crumble under market stress due to flawed designs.
Even earlier synthetic dollars using delta-neutral strategies struggled. They were limited by a lack of liquidity and exploit risks on decentralized trading platforms, hindering their widespread adoption.
The stablecoin market is worth over $200 billion and has over 100 million users, showing strong product-market fit. Yet, it still presents a trillion-dollar opportunity, largely untapped. As DeFi adoption grows and blockchain ecosystems mature, there's an urgent need for a stablecoin that is capital-efficient, censorship-resistant, and generates sustainable revenue.
This gap, caused by the fragility of centralized systems and the inefficiency of decentralized ones, creates the perfect opportunity for a new type of crypto-native money. This new paradigm can truly meet the needs of both individual users and the wider financial world.
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