[Wenggou Original] The total market value of stablecoins exceeds 205 billion US dollars, and the market share of USDT continues to decline. Understand the diverse stablecoins in one article

Traditional stablecoins

USDT (Tether) and USDC (USD Coin) are the two most mainstream traditional stablecoins on the market.

USDT (Tether)

Issuer: Tether

Launched: 2014

Value anchoring: USDT is pegged to the U.S. dollar at a 1:1 ratio and is backed by Tether through reserve assets (such as cash, government bonds, etc.).

Market position: The world's earliest stablecoin, and one of the most traded and liquid stablecoins. Widely used in cryptocurrency transactions, cross-border payments, and liquidity provision in the DeFi ecosystem.

Controversy: Transparency has always been the focus of outside attention, and Tether’s reserve audit issue has sparked widespread discussion.

USDC (USD Coin)

Issuer: Co-founded by Circle and Coinbase, and supervised by the Centre Consortium.

Release time: 2018

Strong compliance: Strictly comply with U.S. regulatory requirements, high transparency of reserve assets, monthly audits and public reports.

Value anchor: 1:1 pegged to the US dollar, with reserves consisting of cash and short-term government bonds. Widely used in DeFi, payment solutions, and corporate transactions.

Market position: It is favored by institutional users for its compliance and transparency, and is the second largest stablecoin after USDT.

FDUSD（First Digital USD）

Issuer: First Digital Labs

Release time: 2023

Anchor mechanism: 100% of the U.S. dollar or cash equivalents (such as short-term Treasury bonds) are used as reserve backing, maintaining a 1:1 value peg to the U.S. dollar.

Blockchain support: Compatible with Ethereum and Binance Smart Chain (BNB Chain). Mainly, Binance Exchange supports its trading, lending, mining, etc., so it has high market acceptance.

DAI

DAI is a decentralized, over-collateralized stablecoin launched by MakerDAO, a smart contract platform on the Ethereum blockchain. Unlike traditional fiat-backed stablecoins, DAI is collateralized by crypto assets (such as ETH) and its value is pegged 1:1 to the U.S. dollar (USD).

Issuer: MakerDAO

Released: 2017

Value anchoring: Through smart contracts and mortgage mechanisms, the stable value is maintained at 1:1 with the US dollar.

Running network: Ethereum and other EVM-compatible blockchains (such as Polygon, Optimism, etc.). It is the algorithmic stablecoin with the highest market value.

New stablecoins

Unlike traditional stablecoins, new stablecoins not only maintain relative price stability, but also provide holders with additional investment returns through innovative profit models.

The main features of the new stablecoin:

1. Provide returns to users by investing in low-risk assets (such as government bonds), staking native tokens, or structured financial strategies.

2. By using assets such as government bonds as collateral, the price can be kept relatively stable and highly liquid, and can be used for trading or exchange at any time.

3. Combine on-chain assets with off-chain funds, bonds, etc.

1. USDe

USDe is a new synthetic USD stablecoin developed by Ethena Labs, which aims to provide a decentralized, scalable and censorship-resistant stablecoin solution. Currently, its market capitalization ranks third in the stablecoin market and first among algorithmic stablecoins.

How it works

The core mechanism of USDe is to maintain a 1:1 peg to the US dollar through a Delta neutral strategy. For whitelisted users (usually institutions, exchanges, and large users), crypto assets such as ETH, BTC, USDT, and stETH can be used as collateral to mint USDe. Ethena Labs uses these collaterals to open corresponding short perpetual contracts or futures positions to hedge against price fluctuations and ensure the stability of USDe's value. This strategy allows USDe to achieve stability and scalability without over-collateralization.

Currently, ordinary users cannot directly deposit ETH or BTC to mint USDe. They can purchase USDe through stablecoin assets (such as USDT, USDC, DAI, crvUSD, etc.) to avoid liquidation risks.

USDe's revenue mainly comes from the following two aspects:

Staking income: When users use liquid staking tokens (such as stETH) as collateral, these tokens will generate staking income, including inflation rewards at the consensus layer, transaction fees at the execution layer, and maximum extractable value (MEV). These income will accumulate over time and increase the value of USDe.

Funding rate and basis income: In perpetual contracts and futures markets, traders holding long positions usually need to pay funding rates to traders holding short positions. In addition, the basis of futures contracts (i.e. the difference between futures prices and spot prices) can also generate income. Ethena Labs uses these mechanisms to provide additional sources of income for USDe holders.

Staking USDe can get sUSDe to enjoy staking benefits. The yield of USDe fluctuates according to market fluctuations and changes in the funding rate of hedging positions. It once reached an annualized rate of return (APY) of 80%, and the current yield of sUSDe is about 8.64%.

https://app.ethena.fi/dashboards/apy

Recently, Ethena cooperated with BlackRock to launch the USDtb stablecoin with returns provided by RWA. This product avoids the risk of funding rates turning negative and can generate stable interest regardless of bull or bear markets, complementing the overall product line and making Ethena the focus of market attention.

ENA is the governance token and mining coin of Ethena. It is the same as the usual in the Usual protocol. It has no real value. Large users are mining, selling and withdrawing. This can also be seen from the K-line. It was almost zero, but it has risen again recently due to the hype of the RWA concept.

2. USD0

USD0 is the stablecoin of the Usual Protocol stablecoin protocol, a stablecoin issued at a 1:1 ratio with RWA assets as reserves.

When users deposit assets, they receive a synthetic asset called Liquid Deposit Token (LDT), which represents the initial value of their deposit in the Usual Protocol. LDT can be freely traded in a permissionless manner and is backed 1:1 by the original assets deposited into the protocol. LDT provides holders with permanent withdrawal rights, allowing them to redeem the underlying assets at any time under normal circumstances. In order to improve the liquidity and security of the platform, Usual Protocol has introduced a variety of RWA assets represented by government bonds to provide collateral for stablecoins.

Due to the stability of Usual’s price, the market value of USD0 and Usual Protocol have remained relatively stable. However, Usual, as the mining coin and governance token of Usual Protocol, does not have much practical effect. When the market begins to shift its attention, this token is destined to be abandoned like many mining coins.

3. Sky Dollar (USDS)

https://sky.money/

MakerDAO announced that it has officially changed its name to Sky. Sky will launch a new stablecoin USDS and governance token SKY on September 18. The existing DAI stablecoin and MKR governance token will continue to exist, and users can voluntarily upgrade their tokens.

According to the rules, DAI can be exchanged for USDS at a ratio of 1:1, and each MKR token can be exchanged for 24,000 SKY tokens; every year, the governance token SKY will be distributed to holders participating in USDS at a rate of 600 million SKY.

4. USDD (USDD)

USDD (Decentralized USD) is a decentralized super-collateralized stablecoin initiated by TRON DAO Reserve and mainstream blockchain institutions. It is currently circulated in 11 mainstream public chains, including TRON, Ethereum, BNB Chain, BTTC, etc. USDD is over-collateralized by a variety of mainstream digital assets, including TRX, BTC, USDT, etc., and provides real-time public query of the pledge rate on the USDD official website (usdd.io) and the TRON DAO Reserve official website (tdr.org), which is highly transparent.

5. BlackRock USD (BUIDL)

https://www.blackrock.com/hk

BUIDL is the first tokenized fund launched by global asset management giant BlackRock on the Ethereum network in March 2024. Its official name is BlackRock USD Institutional Digital Liquidity Fund. The fund aims to provide institutions and qualified investors with a digital asset investment tool pegged to the US dollar, combining the stability of traditional finance with the efficiency of blockchain technology.

How it works

The BUIDL fund issues tokenized shares through Ethereum, and investors can hold and trade fund shares digitally. Fund assets are mainly invested in highly liquid, low-risk financial instruments such as cash, U.S. Treasury bonds and repurchase agreements, ensuring that each BUIDL token is backed by real assets and maintaining a stable value of $1 per token.

In addition to Ethereum, BUIDL has expanded to multiple blockchain networks including Polygon, Optimism (OP Mainnet), Avalanche, Arbitrum, and Aptos.

Revenue Sources

Investors holding BUIDL tokens can enjoy accrued income daily, which will be distributed to investors' wallets in the form of new tokens on a monthly basis. The current yield is similar to the yield of short-term US Treasury bonds during the same period, which is about 4.5%. BUIDL tokens can be transferred to pre-approved investors around the clock, providing high liquidity. It will also cooperate with other defi stablecoins as reserve funds for algorithmic stablecoins to obtain additional income.

6. Ondo US Dollar Yield (USDY)

https://ondo.finance/

How it works

USDY (Ondo US Dollar Yield) is a yield-based US dollar token launched by Ondo Finance, which aims to provide investors with a digital asset that is pegged to the US dollar and has yield.

The value of USDY is supported by highly liquid, low-risk financial instruments such as short-term U.S. Treasury bonds and bank demand deposits. Investors can use stablecoins such as USDC to purchase USDY, and holding USDY is equivalent to indirectly holding these underlying assets. The income of USDY is realized through the interest income of the underlying assets, which is compounded daily and distributed to holders monthly. It should be noted that USDY is only available to non-U.S. individuals and institutional investors, and there is a 40-day lock-up period after purchase, during which it cannot be transferred.

Revenue Sources

Returns on underlying assets: Short-term U.S. Treasury bonds and bank deposits represented by USDY will generate interest income, which is distributed directly to investors after deducting management fees.

Compound Interest Returns: USDY’s returns are compounded daily and distributed monthly, and the value of investors’ holdings will grow over time.

The annualized yield (APY) provided by USDY is adjusted monthly by Ondo based on actual conditions. As of January 23, 2024, the APY of USDY is 4.65%.

In addition to the fees charged through the above spreads, Ondo also charges a 0.2% fee for redemption. USDY is a senior debt secured by bank demand deposits and short-term US Treasury bonds. Ondo overcollateralizes it and provides a 3% first loss position. For every $100 USDY issued, there is at least $103 worth of bank deposits and US Treasury bonds as collateral. In addition, Ankura Trust, as a collateral agent, also provides daily transparency reports with detailed asset holdings.

Ondo said that for USDY’s collateral, the goal is to maintain a 65% allocation in bank deposits and 35% in short-term treasury bills, and not invest in any other assets.

Ondo Token is the native token of the Ondo Finance platform, supporting the operation, governance and incentive mechanism of the platform.

7. USDX Money (USDX)

https://app.usdx.money

usdx.money is a stablecoin issuance protocol launched by Stables Labs (Stables Labs is a project created by a group of DeFi OGs). Recently, the protocol announced the completion of US$45 million in financing. Investors include Dragonfly Capital, Jeneration Capital, NGC, BAI Capital, Generative Ventures and UOB Venture Management, with a valuation of up to US$275 million.

Similar to Ethena, usdx.money earns income through a Delta neutral portfolio strategy, mainly through "multi-currency arbitrage" and "perpetual contract hedging mechanism", that is, establishing a hedging position between the spot market and the derivatives market to ensure that the overall value of the asset portfolio remains neutral to price fluctuations, thereby reducing the risk of market volatility. Compared with Ethena, usdx.money offers a wider range of currency options, not just BTC and ETH. The direct advantage of this flexibility is higher returns. But it also means higher risks.

8. Frax (FRAX)

Frax Finance was launched in May 2019 as an algorithmic stablecoin protocol and later developed into a comprehensive DeFi technology stack. It operates multiple business units, including stablecoins, DEX, money market, liquidity staking, and RWA.

The FRAX stablecoin protocol, part of the Frax Finance protocol, maintains a 1:1 peg to the U.S. dollar through a combination of partial collateral and algorithmic mechanisms.

Operating mechanism: FRAX adopts a hybrid mechanism of fractional reserve and algorithmic stability . Specifically, the minting of each FRAX stablecoin requires a certain proportion of collateral (such as USDC) and governance tokens (FXS). For example, when the collateral ratio (CR) is 90%, it takes 0.9 USDC and 0.1 FXS to mint one FRAX. When market demand increases, the system will mint more FRAX to meet demand; conversely, when demand decreases, the system will reduce the supply of FRAX. This dynamic adjustment mechanism helps maintain FRAX's peg to the US dollar.

Frax Finance introduced the Algorithmic Market Operation Controller (AMO), which allows FRAX's monetary policy to be managed through open market operations rather than relying solely on collateral. This flexibility allows FRAX to respond more effectively to market volatility.

Sources of income:

Interest income: Users can earn interest by staking USDC or FXS. The pledged assets will be used to support the liquidity and stability of FRAX, and users can also obtain corresponding benefits.

Liquidity Mining: Users can earn additional rewards by providing liquidity (such as providing liquidity for FRAX in decentralized exchanges). These rewards are usually issued in the form of FXS or other tokens.

Governance Token FXS: Users holding FXS can participate in protocol governance and earn income through seigniorage, minting/redemption fees, etc. In addition, the value of FXS may also rise with the success of the protocol, providing holders with opportunities for capital appreciation.

The current annualized rate of return of USDY is about 10%. Recently, the Frax Finance community has launched a vote on the adoption of BlackRock's US Dollar Institutional Digital Liquidity Fund Limited (BUIDL) as the reserve asset for the stablecoin Frax USD (frxUSD). As a positive, FXS pulled up a wave of trading, but it is not really a positive.

9. Resolv USD (USR)

https://resolv.xyz/

Resolv USD (USR) is similar to Ethena. It uses ETH and derivatives as collateral to protect assets from market fluctuations through hedging operations, thereby achieving stable value support. USR can also be purchased through USDT and USDC.

Sources of income:

Income from ETH staking

Profitable price difference in hedging operations

These profits will be distributed daily to users holding stUSR.

10. M By M⁰ (M)

https://www.m0.org/

M⁰ is a decentralized stablecoin protocol that enables licensed participants to mint M tokens based on collateral approved by the protocol. M⁰ users can earn returns on the collateral they hold while using USD stablecoins. The core members of the M⁰ team come from projects such as MakerDAO and Circle. The protocol was initially launched on Ethereum and will later expand to other L1 and L2 networks.

Operation mechanism:

1. Mortgage and minting:

The minter needs to deposit off-chain collateral approved by the protocol (such as treasury bonds, etc.), and generate M stablecoins after being approved by the validator. The collateral rate is set by the protocol to ensure that the value of each M is pegged to $1. The protocol maintains the stability of M through an arbitrage mechanism. If the market price of M deviates from the peg, arbitrageurs will buy or sell M to bring its price back.

2. Custody and on-chain verification:

Custodians operate independently, store collateral, and regularly verify the value of assets on the chain. Validators are responsible for monitoring the behavior of minters and taking measures to restrict activities in the event of violations.

3. Avoid improper behavior of minters through delayed minting and penalty mechanisms.

Sources of income:

1. The collateral deposited by the minter, such as treasury bills or other low-volatility assets, will generate passive income.

2. The minting fee paid by the minter to generate M.

3. A one-time fine will be charged to minters who fail to update the collateral value or maintain compliance on time, which will be used to maintain the stability of the protocol.

11. Yala

https://yala.org/

Yala is a stablecoin protocol based on the Bitcoin ecosystem. It is still a testnet, and you can get an airdrop opportunity by completing tasks!

Yala has completed an $8 million seed round of financing, led by Polychain Capital and Ethereal Ventures, with participation from Galaxy, Anagram, ABCDE, Amber Group, HashKey Capital, Satoshi Lab and UTXO Management.

Operation Mechanism

Users connect their BTC wallet, deposit BTC or UTXO assets into Yala Finance, and borrow the stablecoin $YU.

Choose DeFi protocol products that cooperate with Yala, such as staking, re-staking or liquidity mining protocols, to perform asset appreciation operations.

The initially deposited BTC is withdrawn, while additional earnings are converted to BTC and returned to the user's BTC wallet.

Revenue Sources

Users earn additional returns by investing borrowed $YU in partnered DeFi protocols (such as staking and liquidity mining), and these returns are ultimately returned in the form of BTC.

Stablecoin Summary

The market for stablecoins is huge. It is the cornerstone of DeFi and the cornerstone of subsequent PayFi. For a long time, stablecoins should still be prioritized with stablecoins such as USDT/USDC that use legal tender as reserves. Some algorithmic stablecoins may be very popular in the short term because of algorithms or platform tokens, but in the long run, it still depends on the BD capabilities of the platform, whether it can be recognized by exchanges, and whether it can be recognized by more DeFi protocols. There are two main types of new stablecoins now. One is to use traditional financial assets such as treasury bonds as reserves, which have returns but not much. High returns like usual are all based on platform coins as incentive subsidies, which are emitted daily. If the market can continue to take over, it can maintain stability, otherwise it will eventually return to zero. The other is to maintain the balance of stablecoins through arbitrage, but this is not transparent, unregulated, or not safe enough, and is destined to develop only around on-chain DeFi.

However, the market value bubble of stablecoins can be blown up very big, such as BUILD, which maps off-chain assets to the chain, and can then be used as a reserve to generate FRAX's stablecoins. FRAX's stablecoins can also be used as stablecoins to become reserves for other new stablecoins, but in fact there is only one reserve behind them. Facing stablecoins, what we can do is to find new stablecoin protocols, make arrangements in advance, win airdrops and pledge rewards, and avoid taking over platform coins!