Decentralization stablecoin Depth Observation: The competition is still fierce, who will emerge as the champion?

Stablecoins can be divided into centralized stablecoins and decentralized stablecoins. As long as they are not fully decentralized, they face the default risk brought by centralization. In an era where regulatory threats are looming, decentralization is an important attribute of stablecoins.

Most stablecoins cannot become the base currency of the crypto world, and are only equivalent to commercial bills, exercising the lending function of mainstream stablecoins through trading pairs. A stablecoin mechanism needs to create its own demand scenarios, not only serving as a medium of exchange but also considering unique economic activities.

The centralized stablecoin sector has basically settled, with USDT and USDC being hard to distinguish. Although CrvUSD carries centralized risks, it has a complete functional module and promising potential. Currently, decentralized stablecoins are almost a barren land, but there is underlying demand and potential development opportunities.

Why stablecoins should be decentralized

Decentralization currency is the source of currency. Historically, there have been past centralized currencies, such as barter or debt forming currency. Centralized credit did not participate in the currency generation process from the beginning.

The issuance of stablecoins is to increase credit, and centralized stablecoins do not have the right to mint. We hope to create stable credit free from centralized power. Crypto fundamentalists believe that the right to issue currency has been stolen by centralized institutions. Those who have the right to issue enjoy seigniorage, and the issuer has the incentive to issue excessive currency.

Centralized stablecoins are subject to centralized threats, and their credibility can be questioned due to flaws in central credit, often challenging their value. The trust in centralized stablecoins is not inherent, as USDC and USDT have faced runs due to rumors. They are backed by the U.S. financial regulatory system and are inevitably constrained by the U.S. government. Decentralized stablecoins provide everyone with alternative choices.

stablecoin: Icarus's Wings

Algorithmic stablecoins continue the path of BTC, exploring Decentralization credit. They will not help fiat currencies capture value in the crypto world, competing with centralized stablecoins. Therefore, it is difficult not to conflict with the interests of central banks or governments.

Stablecoins are a scalable business. To increase usage rates, in addition to price stability, higher interest rates and lower transaction costs are also needed. Small-scale stablecoin exchanges to other tokens must go through mainstream token settlements, with few trading pairs, high fees, and significant slippage, which is not conducive to the entry of large whales.

If stablecoins want to achieve scale, they inevitably face the attention of traditional forces. The traditional world has always harbored malice towards cryptocurrencies. The IMF's hostility towards cryptocurrencies is evident. When the DCEP, led by central banks of various countries, enters the scene, who will be the ragtag army that should be eliminated?

Without scale, sustainable operation is impossible; with scale, there is the risk of centralized power interference. This is the Icarus' wings of stablecoins. The way out is either to fall under traditional powers or to be fully prepared for complete decentralization.

Stablecoin Track Industry Structure

Currently, USDT and USDC dominate most of the market share, but there are hundreds of other types of stablecoins. What is the state of the stablecoin sector?

High Energy Coin and Broad Money: USDC and USDT have occupied a high-energy currency position in the stablecoin world. Most stablecoins that rely on them for liquidity only provide a broad currency similar to traditional finance.

Lending system? Many small stablecoins have not established trading pairs with various tokens, and external yields are close to zero aside from internal mining. There are costs associated with creation and lending. They can only be exchanged for mainstream currencies through trading pairs to participate in on-chain activities. This incentive is essentially an interest rate subsidy for mainstream stablecoins. Functionally, the generation mechanism of small stablecoins + trading pairs = over-collateralized lending.

Stablecoin Landscape

Centralized methods remain the most mainstream. With the improvement of regulations, the risks of centralized stablecoins are gradually being addressed. However, centralized risks still exist, such as the recent concerns about USDC default.

The method by which algorithms create stablecoin price stability:

1. Rebalance stablecoin: such as AmpleForth, but has lost market vitality.

2. Restrict the circulation of stablecoins: such as FEI, but restricting liquidity is counterproductive.

3. Minted stablecoins: such as UST-Luna, but most have failed. FRAX still exists, introducing USDC as the majority credit collateral.

4. Over-collateralized stablecoins: such as DAI, LUSD, the most mainstream and mature. A new batch like GHO, CrvUSD also adopts.

Calculate Stability and Compete for Dominance

Includes centralized risk in the stablecoin track: Curve and AAVE join with resource brands. CrvUSD and GHO are both over-collateralized stablecoins, expected to scale rapidly.

MakerDAO's DAI faces fierce competition and carries RWA risks. The collateral backing FRAX is USDC, sharing the same source of risk. In contrast, USDC and USDT have strong profitability, with their market share continuously expanding.

Complete Decentralization is a stablecoin track: Only a few projects remain, such as Liquity, Inverse Finance, and RAI. They are completely isolated from centralized interference, but their scale is small, stability is poor, and liquidity is insufficient, making it difficult to form a monopoly advantage.

Conclusion

In the stablecoin sector, incomplete decentralization faces the risk of complete centralization. Centralized stablecoins have formed a monopoly. The market share of decentralized stablecoins is small and in its early stages of development, but it has an inherent market and is full of hope. Currently, no decentralized stablecoin has formed a monopoly scale advantage.