Decentralized Finance (DeFi), which refers to the provision of financial services through automated smart contracts, is by far the fastest growing segment of the cryptocurrency market, growing 11 fold since the beginning of the year. It is currently estimated that over $8bn USD of total value is currently locked in DeFi applications (commonly referred to as TLV — Total Value Locked), growing from an estimated $674M USD in January 2020. These estimates may be inflated due to rehypothecation of assets, however, even when using conservative estimates of TLV, DeFi is still a market exhibiting between 500%-1000% CAGR. Stablecoins (cryptocurrencies designed to maintain a stable price) have proven to be the most critical component of this trend, as they facilitate these growing credit markets.
Stablecoins are an essential component of credit markets on DeFi. Borrowing or lending with a volatile base asset makes a system overly complex or even untenable. With the use of stablecoins, higher participation rates can be attained, as a large part of the system complexity is removed. This helps explain the drastic rise in the stablecoin market cap ($6bn USD six months ago, surpassing $16bn USD today).
Increasing interest in stablecoins has led to an explosion of such coins. Stablecoins offer the potential for crypto assets to cross the chasm to mainstream adoption and, for the first time, be used as currency.
However, as more stablecoins are issued, the ever increasing fragmentation of the stablecoin ecosystem reduces their utility, creating a confusing, risky and often an illiquid assortment of coins.
We propose the CementDAO platform, a distributed self-governing organisation for creating a unified stablecoin ecosystem. CementDAO will promote the emergence of many more stablecoins while identifying and curating the “best-in-class” offerings. It will allow these coins to be interoperable and make transactions frictionless. CementDAO will also provide users with the ability to effortlessly protect themselves from the risks of idiosyncratic issuer failure.
CementDAO will provide a path to wide adoption of crypto-as-currency, promoting the growth of the market, while maintaining it’s decentralized ethos.
“History doesn’t repeat itself, but it often rhymes.” — Mark Twain
In the 1950s, department stores, and later banks, started offering metal ‘credit cards’ that customers could use to make purchases. These were useful for customers who didn’t want to carry cash or wanted to buy with credit. Issuing these cards was beneficial to merchants and banks who wanted more money circulating within their businesses. However, there was a problem, these cards were only accepted by small groups of merchants and banks based on local relationships. Customers had to carry lots of different cards and they were useless in most places — inhibiting widespread adoption.
Then in 1966 Bank of America — who had a popular card called BankAmericard — started licensing their card to other banks. Suddenly, the customers of banks across the country could become BankAmericard holders and banks could now add their customer base to a much larger network. BankAmericard became the middleman and network authority to all of those transactions. BankAmericard would eventually change its name to Visa.
Today we are seeing the stablecoin space unfold in a similar way — multiple issuers providing different stablecoins to their users, but with no interoperability layer that allows them to be fully interchangeable for each other while still providing for customer protections.
The ever increasing number of stablecoin projects is fragmenting the market and making risk assessment impossible for most users. Each project has unique advantages and use cases — yet they are not fungible and easily interoperable. With so many issuers, a platform for aggregating and unifying them is necessary.
Cement provides the solution, acting as a decentralized “Visa network for stablecoins”. Cement does two things:
- It is a stablecoin interchange: it makes stablecoins interoperable, so that any two stablecoin users can pay each other, even if they don’t use or hold the same stablecoins.
- It protects holders of stablecoins from risk. Any stablecoin can lose its peg, but holders of Cement MIX tokens are protected from this risk through diversification and insurance.
Cement easily integrates with any exchange, wallet or application that works with Ethereum. In the future it will make stablecoins interoperable across other chains as well, allowing users to migrate their stablecoin value.
Stablecoins may sound niche — but, at the time of writing, there are already over US$18bn-worth issued and annual inter-stablecoin transaction value exceeds the transaction volume of ETH, and growing fast. Major players like JP Morgan, Central Banks, and Facebook are issuing their own stablecoins. Cement solves key problems that prevent stablecoins from being easier to use and become even more popular. CementDAO is set to dominate the fast growing stablecoin-to-stablecoin transaction space.
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