8 Thoughts Following “Stablecoins Are Killing It” Ep. #5 W/ Maker, Flipside Crypto, & Liquity
The first 30 minutes of Episode #5 featured our panelists giving an overview of their thoughts on stablecoins. The remaining time was spent on Q&A with the audience. You can view the entire (awesome!) episode below:
Or you can read about the great lineup for “Stablecoins Are Killing It” episode #6 which will have a focus on China’s central bank digital currency, or you can read my eight highlights below from episode #5:
1. The Vision of Maker Has Always Been A Stablecoin Backed By A Portfolio Of Assets With Net Volatility As Close To Zero As Possible,
That vision always necessitated a wide variety of assets, including real world centralized assets, to diversify risk, including volatility risk and existential risk. Maker recently on-boarded WBTC ( a centrally wrapped BTC) in to the portfolio, and got criticism. But adding WBTC diversified the risk, and made DAI no more centralized. Maker will continue to add more types of collateral, with at least several new ones expected over the coming year.
2. Maker’s Governance Accounts For The Fact That Algorithms Can’t Solve For Long Term Tail Risk
Maker has a weekly “Monetary Policy” call, where fees and interest rates for the next week are decided by Maker holders.
Maker also has a monthly “Governance Cycle” call, where things like new collateral and structural parameters are discussed.
Greg stated that Maker believes you need real people looking at the data and deciding the parameters, because there’s no algorithm that can solve for the tail risk of an asset in 10 years.
Greg further noted that while participation in the governance calls is relatively low as a percentage of all Maker holders, Maker sees this as a feature not a bug, and will enable delegation of votes at a later date.
3. 75% Of Stablecoin Volume Is On The Ethereum Blockchain & ~25% Of Ethereum Transactions Involve At Least One Stablecoin Transfer
As a result of Ethereum’s dominance, Will’s further comments, and thus the graphs below, all focus on transactions over the Ethereum network.
4. Tether Is Used Mainly For Arbitrage On Centralized Exchanges, And Mostly In Asia
In his remarks, Will largely focused on Tether (in green), USDC (in blue), and DAI (in orange) as they offer a good balance of distinct use cases and they have the most vibrant communities. Each colored line above represents a token transfer. The end points of the lines, or nodes, show Ethereum addresses, arranged by how connected they are. The more transactions between two addresses, the closer together on the graph. So addresses that interact mostly with centralized exchanges tend to cluster together as those with predominant activity in the DeFi space
The data, per the graph above, shows that Tether is largely used for arbitrage via Asian centralized exchanges (Huobi, Binance, and Bitfinex). Anecdotally, Will sees evidence that Tether is also being used for remittances and cross border payments, but Flipside does not see evidence of that thru centralized remittance platforms. Flipside does have indications that Tether is seeing nascent growth in DeFi via stablecoin swaps like Curve, and lending and borrowing pools like Aave and Compound.
Some people are very excited about Tether in DeFi given its market cap dominance, while others are worried about the risk due to Tether being centralized.
5. DAI Usage Is Most Closely Clustered Around Oasis, Kyber & Uniswap
DAI has the vast majority of its use in DeFi, with the nexus being the Oasis on-chain decentralized exchange. There’s also a lot of adoption of DAI in liquidity pools like Uniswap,. Will also noted that Coinbase is the most meaningful onramp from the centralized world to DeFi, where DAI sees most of its exchanges.
6. USDC Is Seeing Increasing Adoption In DeFi
While DeFi had historically preferred DAI for its decentralization and trustlessness properties, USDC is seeing increased preference among protocols and DeFi due to its higher liquidity (larger market cap than DAI) and the fact that its more stable relative to its peg. DeFi users appear less concerned about USDC being centralized and the associated risks.
7. Use of Tether Is Largely In Asia & Europe, DAI and USDC Are Mostly Used In The U.S.
The chart above depicts hourly transaction volume using a 24 hour clock based on UTC — London time. This helps to understand the geographic distribution of the users by conducting time of day analysis.
Tether starts to pick up around 1am UTC (9am China) and doesn’t taper off until 5pm UTC. This makes sense given the lower access to the traditional dollar based banking system in those areas. USDC is predominantly used during U.S. working hours, while DAI skews western, but is more distributed.
8. Liquity Is A New Stablecoin That Eliminates Interest Rates And Lowers The Collateral Ratio To 110%
Liquity is solving for two major issues. The first is the unpredictable nature of interest rates, which can be painful for users. Liquity eliminates interest rates and replaces them with algorithmically determined fixed fees.
Liquity has innovated around “instantaneous” liquidity, which enables them to lower the collateral ratio to 110%, which many stablecoin users will find to be helpful.
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