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.