AUSD, Stablecoin 3.0, and why “Yield-Bearing Stables” are not Money (or Stablecoins)
At Agora, we believe that digital dollars are going to take over the world, starting with the Eurodollar market, and that our own AUSD’s model will be the dominant form in the world by 2030. Stablecoins are already a $150 billion market and settle $10T annually. We see them growing to $3T by 2030. Eventually, all other currencies will be digitized too, and FX trading will predominantly occur on-chain. As these on-chain dollars proliferate, businesses will demand payment coins and will look to partner with issuers who share their economics. Businesses, such as exchanges, trading firms, and applications, are the ones who drive utility and liquidity to these payment tokens network. Agora solves this issue and pays the most important pieces of the monetary network: your business.
How has the Stablecoin model evolved over the last decade?
Stablecoin 1.0. In the early and mid 2010’s Bitcoin was the primary quote token and store of value against other volatile pairs on centralized crypto exchanges. This is suboptimal unless you’re tracking your wealth and paying your taxes in Bitcoin. The Bitfinex and Tether team were the first to bring centralized, digital dollars to life in a meaningful manner. You sent them fiat, and in return they minted a USD payment token. There was now a dollar-backed alternative that facilitated trading and moving out of risk assets on-chain. USDT was the first-mover and is stablecoin 1.0.
Stablecoin 2.0. Following the growth of Tether, several new entrants entered the market including USDC, BUSD, etc. These companies built upon the Tether model by introducing greater transparency around reserves, U.S. banking partners, and generally-speaking, a pursuit of some form of license. Most critically, however, they all had retained USDT’s single-partner model to drive distribution.
Problem 1) USDC shares significant economics with Coinbase, just as BUSD did with Binance.[1] This model is rife with conflict of interest for every other business operating in and around stablecoins. Every other exchange or chain that uses these payment tokens in their ecosystem, half (or more) of the unit economics is going to one of your biggest competitors!
At Agora, we’re addressing this issue by creating a more equitable model. We embrace an open model, we don’t pick winners and losers and instead compensate all service partners, ensuring a fairer distribution of economic benefits.
Problem 2) As interest rates rose, these issuers’ margins improved, attracting more attention. In 2023, $8B was siphoned out of crypto by two primarily rent-seeking players. This highlighted the potential for a new iteration of stablecoins: the “yield-bearing stablecoin”. Several companies have launched these “yield-bearing stablecoins”. From our perspective, however, this approach feels like jamming a square peg into a round hole.
“Yield-bearing stablecoins” are not money (or stablecoins). Why?
What are some of the primary traits that make a stablecoin valuable? Utility, Liquidity, and Means of Transaction.
1. Lower Utility and Acceptance. If you are an American, it is relatively straightforward that “yield-bearing stablecoins” are security products. There is a pressing need for legislation to support new open-source software projects in crypto, and the market has faced significant challenges with regulation by enforcement. This is black and white issue, and likely the reason why current issuers do not offer their products in the United States. As a result, they miss out on the largest global capital market and any American-linked business .
Moreover, these products are likely to fall under securities legislation in other global markets. Not only does this deprive you of customers, it also deprives you of liquidity providers, vendors, and a higher utility ceiling. Your product is not freely tradeable. Regulated financial service companies outside of the US are unlikely to use your product as it introduces risk without offering sufficient reward.
2. No Margin for Development. This is probably the issue that is less frequently addressed in public discourse. Liquidity stems from both organic and inorganic usage by market participants, including market makers, trading firms, and everyday users or applications. “Yield-bearing stablecoins” often lack margin to sustain their own business, let alone pay for liquidity and to develop an ecosystem. We’ve observed liquidity issues each time these products launch on new chains. 10 basis points of revenue on $1B in AUM translates to $1M in revenue per year, this amount is likely insufficient to cover legal fees and licenses in one jurisdiction.
3. These Issues Reinforce One Another. “Yield-bearing stablecoins” will never be used as a means of transaction or payment at scale due to the issues described in Point 1. This lack of transactional and payment uses deprives them of an organic liquidity source, as discussed in Point 2.
Despite being dollar-denominated, these products are essentially yield products. They may attempt to brand themselves as stablecoins or to be used as a means of payment or trading, but they are unlikely to achieve substantial demand in these areas.. Substantial demand being subjectively defined as being used by traditional corporates, financial service firms, and $25–50B of circulating supply.
Yield products are great compliments to AUSD, USDC, and USDT for those with low-velocity capital specifically aimed at generating yield. So if “yield-bearing stablecoins” are complements to stablecoins and not a solution to the problems above, how does one create a more equitable business that compensates those that drive liquidity and utility to the payment network?
Stablecoin 3.0. AUSD represents the next iteration of stablecoins, embodying the principles of Stablecoin 3.0. Here’s why AUSD stands out as the best stablecoin for both businesses and users:
Incumbent issuers often behave as if their payment tokens inherently drive utility for businesses. From our perspective, this is completely backwards. At Agora, we believe businesses are the ones that drive organic utility and liquidity to stablecoins. They are the ones developing applications, enabling trading, and facilitating their use as collateral or payment. They are the ones with millions of users, and they should be compensated for the services they provide to the money network. Digital dollars should be seen as money as infrastructure, where the true value is created by the businesses leveraging them to build and innovate.
The standard creation and redemption flow of stablecoin minters is the following:
The “Stablecoin Minter” is Agora.
The “Business” can be some of the following:
- Exchanges
- Market Makers and Trading Firms
- Payment Companies
- Financial Service Companies
- Applications
- Banks
“End Users” can be:
- Business Users
- Individual Users
At Agora, we designed AUSD to be the best stablecoin for your business. As long as your business passes our compliance checks and is in a jurisdiction we can serve, we want to partner with you! Our economic model is aligned with your interests. We compensate businesses based on services they provide, some of which include: listing our token, providing liquidity, marketing, and accepting AUSD as payment or collateral on their platform.
Who do we primarily work with?
- Exchanges
- Trading Firms
- Applications
- Fintechs
It’s clear why businesses love this model. In some instances, we’re compensating companies in our pipeline $1-$10mm+ in annual recurring revenue (ARR) with minimal effort, and sometimes even providing them with a business model for the first time!
So what about the users? Why should they care?
Because businesses control the user experience. We share Agora’s revenue with our business partners providing them with a meaningful, consistent cash flow to their business. The remaining funds are used to run liquidity programs, ensure compliance, provide security, and operate the business.
This fresh stream of revenue allows businesses to:
- Hire additional developers
- Increase marketing rewards program
- Improve security
- Spend more on user acquisition
In summary, imagine a world where some applications take a small share of the income from Agora and use the majority to benefit users, creating a win-win situation where businesses thrive and users enjoy enhanced services and better user experience.
Et voila! The majority of the $8B that was siphoned out of crypto in 2023 is being returned to businesses across the crypto ecosystem. Not only is this a more equitable model, but it also strengthens all of crypto.
This is why we started Agora. This is why you join the AUSD network. This is Stablecoin 3.0.
[1] https://www.theblock.co/post/246806/coinbase-move-to-support-usdc-shows-importance-of-interest-income-to-bottom-line
