Crypto Stablecoin Report 04: Tether additional issued 300 million USDT, commenting on various decentralized stablecoins
Original link: https://bihu.com/article/1514108114
Original publish time: June 9, 2020
Original author: Lie Ma, researcher of MYKEY Lab
We released MYKEY Crypto Stablecoin Report to share our interpretation of the development status of stablecoins and analysis of their development trends to help the participants in the crypto market stay updated on the development status of stablecoin. The MYKEY Crypto Stablecoin Report will be published every week, looking forward to maintaining communication with the industry and exploring the development prospects of stablecoin together.
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- The market capitalization of stablecoins has increased by about $276 million in the past week, USDT has additionally issued 300 million on Tron.
- Bitfiniex announced the integration of USDT into OMG.
- MakerDAO added TUSD (TrueUSD), a stablecoin as collateral for Dai by performing voting.
- We have proposed a new classification method for stablecoins.
- We briefly compared and evaluated the decentralized stablecoin systems.
1. Overview of Stablecoin Data
First, let’s review the changes in the basic information of the various stablecoins in the past week.
Market Circulation
Source: MYKEY, Coinmetrics
At present, the market circulation of major stablecoins is about $11.286 billion, which has increased by about $276 million in the past week ( from May 29, 2020, to June 5, 2020, the same below), with a weekly growth rate of up to 2.51%.
Source: MYKEY, Coinmetrics
Among them, USDT was additionally issued 300 million, the circulation of DAI, GUSD, and TUSD increased by $3.65 million, $3.63 million, and $870,000. While the supply of other stablecoins has decreased, in order of decrease, BUSD, PAX, USDC, HUSD decreased by $14.13 million, $8.04 million, $5.39 million, and $4.09 million.
USDT was additionally issued on Tron last week. The current USDT on Tron accounts for 26.75% of the total circulation of USDT. Besides, Bitfiniex announced the integration of USDT into OMG on June 2. OMG is a two-layer blockchain based on Ethereum. This move will ease the pressure of activities on USDT on Ethereum.
In the month since we published the report, the market capitalization of DAI has been growing steadily and its strategy is more open than ever.
On June 5, MakerDAO added TUSD (TrueUSD), a stablecoin as collateral for Dai by performing voting. TUSD is the fifth collateral included in the Maker agreement after ETH, BAT, USDC, and WBTC.
The Number of Holding Addresses
Source: MYKEY, DeBank
The number of stablecoin holding addresses on Ethereum has decreased significantly. Last week, the number of stablecoin holding addresses on Ethereum decreased by 20,622.
Source: MYKEY, DeBank
The decrease in the number of holding addresses mainly came from USDT, which decreased a total of 27,459, and it has maintained a growth of 100,000+ in the past few weeks.
The number of holding addresses of other stablecoins has increased. Among them, the addresses of DAI have been newly added up to 3,813, while USDC, PAX, and TUSD have added 1,388, 1,482, and 154.
The Number of Active Addresses
Source: MYKEY, Coinmetrics
Last week, the number of active addresses of stablecoins as a whole continued to be at a historical high.
Among them, although the number of USDT holding addresses has decreased, the number of active addresses has not decreased significantly.
The Number of 24-hour Transactions on the Public Blockchains
Source: MYKEY, Coinmetrics
Last week, the number of daily transactions of major stablecoins maintained a growth trend.
The Number of 24-hour Volume of Transactions on the Public Blockchains
Source: MYKEY, Coinmetrics
Source: MYKEY, Coinmetrics
Last week, the daily volume of transactions of major stablecoins maintained the recent level of transactions, and the proportion of the daily volume of transactions of each stablecoin did not show a trend change.
2. The Comparison of Decentralized Stablecoins
Redefinition of the Classification of Stablecoins
People divided stablecoins into three categories in 2018:
Legal currency-collateralized stablecoin, represented by USDT issued by Tether.
Digital asset-collateralized stablecoin, represented by DAI issued by MakerDAO.
Algorithmic bank stablecoin, represented by Basis (shut down).
But with the development, we see that the collateralized assets behind USDT are unknown, but it can be confirmed that they are not 100% collateral for legal currency assets. In addition to corporate debt, USDT collateral may also have crypto assets such as BTC, MakerDAO has introduced USDC with legal currency as collateral and may introduce other traditional assets in the future. Basis has been shut down, and there are no successful cases of other algorithmic banking stablecoins.
Therefore, the above classification is no longer applicable to current stablecoins. We believe that the more appropriate classification would be:
Stablecoins for collateral escrow by centralized institutions, such as USDT, USDC, etc.
Stablecoins for decentralized contract escrow collateral, DAI, EOSDT, etc.
We can simply call the former Centralized Stablecoin and the latter Decentralized Stablecoin.
Source: MYKEY
The chart above compares different decentralized stablecoin projects, and we proceed to analyze them in some detail.
Introduction to the CDP Stablecoin Mechanism
MakerDAO is a leader in the decentralized stablecoin projects, with a USD stablecoin DAI circulated market capitalization of $111 million, and a new all-time high.
The stablecoin generation mechanism of MakerDAO is Collateralized Debt Position (CDP). The operation of the mechanism for two and a half years has verified its reliability and it can be seen that other stablecoin projects also mainly adopt this kind of stablecoin generation mechanism and here we briefly introduce the CDP-based stablecoin system.
CDP is a smart contract running on the blockchain. It is the core component of such a stablecoin system and its purpose is to collateralize the assets licensed by the agreement and generate stablecoins. The collateralized assets are held in escrow in the smart contract until the generated stablecoin is returned to the contract. The volume of CDP determines the total supply of stablecoins. People can generate more stablecoins when they collateralize more assets in CDP and destroy the existing stablecoins when repaying the position. This controlled generation and destruction cycle allows the contract to calculate the total supply of stablecoins, demonstrating that the value of the collateral can always guarantee the value of the stablecoins in circulation.
The collateral value in CDP is always set higher than the value of the debt, and the stablecoin system sets a minimum collateral rate. Liquidation is triggered when the collateral rate of the system falls below the required minimum collateral rate, and some stablecoin systems require an external liquidator, such as MakerDAO, while the clearing module of some stablecoin systems will automatically perform liquidation, such as Acala. The liquidated CDP generally needs to pay a certain fine to encourage CDP holders to properly manage it.
The generation of stablecoins from collateralized assets is a kind of borrowing, and it is generally necessary to pay a certain amount of interest, called Stability Fee. The amount of the stability fee is determined by its system governance module (usually determined by the proposal and voting of the native token holder of the stablecoin system), is the stablecoin system reconciliation tool.
The Stablecoin Mechanism of Celo
In the comparison chart, we can see that all stablecoin systems except Celo use the CDP mechanism. Unlike the over-collateralization of CDP (minimum collateralization rate > 100%), Celo uses an anchored dollar value of 1:1 cGLD as the reserve.
To maintain the stability of cUSD, Celo sets up incentives for users to spontaneously adjust the supply of cUSD for arbitrage to match the supply of cUSD with demand and to guarantee price anchoring.
The flexible supply mechanism of Celo allows users to create new cUSD by sending a $1 cGLD to the reserve or redeem a $1 cGLD by burning 1 cUSD. This mechanism generates incentives.
When the demand for cUSD decreases, users are motivated to buy 1 cUSD in the market at a price below $1 and use it to redeem a $1 cGLD and sell the cGLDs in the market for $1. When the demand for cUSD increases, users will be motivated to buy a $1 cGLD on the market, exchange it with the agreement for a cUSD, and then sell the cUSD at the market price for more than $1.
Whether the demand decreases or increases, the market price of cUSD can be pushed back to $1 through this connection with cGLD, without the agreement itself estimating its optimal expansion or contraction amount.
To encourage long-term cGLD holdings and ensure that the reserves remain healthy, cGLD transactions are subject to a variable transfer fee, and the lower the reserve ratio, the higher the transfer fees will be. Besides, if the reserve ratio is lower than the target level, a large part of the block reward will be allocated to the reserve fund.
Comments on the selection, value capture and development prospects of each public blockchain of decentralized stablecoins
Another major difference between the stablecoin systems above is the choice of the public blockchain. Is it necessary for the stablecoin systems to build their public blockchains?
We believe that from the perspective of performance, it is necessary to build their public blockchains. Currently, we see that Ethereum has been congested for a long time due to the increase in activities on the blockchain, and the gas fee has also become expensive. Moreover, through the data, we can see that transactions related to stablecoins account for a large proportion of them. If the situation is not improved for a long time, the development of new stablecoins in this environment will undoubtedly be restricted.
Besides, in the early stage, self-built public blockchains help stabilize the bootstrapping of the stablecoin system. The native token of the stablecoin system of self-built public blockchain has other uses than the governance stablecoin agreement, mainly for staking to ensure the security of the public blockchain. Block rewards and fee income other than the stability fee will attract people to join the network.
However, in the long run, the development of stablecoins is cross-blockchain (or off-blockchain, blockchain agnostic). We even think that it is widely accepted that stablecoin is used as an asset in different scenarios by cross-blockchain and successful stablecoin must be like this. We have already seen this on USDT, and BTC as an asset is also showing signs of being “off-blockchain”.
This trend will lead stablecoins to the blockchain with the richest ecology and the most scenarios, and it is unknown whether the blockchain is a self-built public blockchain. The development of the public blockchain ecology has a network effect, and the current performance limitation of Ethereum is the window of opportunity reserved for other public blockchains.
From an investment perspective, the value capture of the native token of the stablecoin system is divided into two parts. One part comes from the stability fee, which depends on the growth of the stablecoin itself, and the growth of the stablecoin depends on the market recognition and demand. The other part comes from block rewards and fee income, which depends on the prosperity of the public blockchain.
The stablecoin system of the self-built public blockchain may face such problems: under certain circumstances, the growth of the stablecoin scale does not necessarily bring about the prosperity of the public blockchain ecology (or limited assistance). However, if the public blockchain is not prosperous enough, it will be possible to affect the scale of stablecoins. Because the stablecoin system of the self-built public blockchain needs to use its native token to ensure the security of the system. When the public blockchain is too depressed, the value captured from the stability fee may not be enough to protect the security of the system. Stablecoins without a self-built public blockchain hand over security to the public blockchain where it is located (MakerDAO to Ethereum, Equilibrium to EOS), and there is no such problem.
Therefore, the stablecoin system of self-built public blockchains faces the dual tasks of market promotion of stablecoin and ecological construction of the public blockchain. In this regard, Kava as Cosmos Hub and Acala as Polkadot parallel blockchain may have advantages over Celo, an independent public blockchain.
This is what we’re sharing in this MYKEY Crypto Stablecoin Report, welcome to stay tuned for follow-up crypto stablecoin reports. We will provide more interpretations of the development status of stablecoins and analysis of their development trends to help you stay updated on the development status of stablecoin in the follow-up report.
PS: MYKEY Lab has the final right to interpret the content of the article, please indicate the source for the quotation. Welcome to follow our official account — MYKEY Lab: MYKEY Smart Wallet.
Past review
MYKEY Crypto Stablecoin Report 03: Where are the users of DAI?
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