Stablecoins' Horizontal Expansion
After ICOs dominated 2017, many labeled 2018 the “Year of the Stablecoin”. Fiat-backed, algorithmic and collateral-backed stablecoins all hit the market last year, but their growth has not slowed with the largest stablecoin, Tether, passing an eye-popping $3.5bn in circulation this month.
USDC is the most successful of the trusted fiat-backed coins and is Circle’s only bright spot of 2019 with over $400m out in the wild. Dai, of course, is the darling of DeFi and its $79m in circulation is nothing to scoff at. The Stablecoin Report with more:
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The benefits of stablecoins are self-evident in its name. They initially emerged as a way to make trading across different exchanges easier, particularly in Asia where Tether started as Bitfinex’s stablecoin.
Tether holders are almost exclusively traders. The only reason to have Tether (or USDC, TrueUSD, Paxos, etc) was to access liquidity in different markets, because stablecoins are cheaper and quicker than ACH or SWIFT.
This time it’s different: Trading is only but one use case of a currency. Once a currency is widely circulated, it can facilitate other types of transactions, besides arbitraging between exchanges, as was seen last month, when CoinDesk reported that Chinese and Russian OTC are trading $10-30m to facilirate imports around strict capital control restrictions. Chinese importers use Tether in trade with Russian counterparties because of strict capital control restrictions.
But if blockchain systems are all they’re cracked up to be, other financial services – besides trading – should be able to leverage stablecoins. Tether’s accounting shenanigans have obfuscated its genuine innovation, but it dominates stablecoins because it was early and because it also controlled a major exchange.
Enter Lending. In blockchain’s aim to recreate the financial system, after you’ve mastered a marketplace to exchange assets, borrowing and lending is the obvious next step. But this time, DeFi alternatives aren’t playing catch up. 0x, Kyber and Uniswap all launched in a world where Bitfinex, Coinbase and Huobi already existed.
DeFi stands a fighting chance. Lending is arriving to the blockchain and stablecoin world before centralized services could create a monopoly. But they will come.
BlockFi and Grayscale have been successful at the centralized bitcoin market and would be bigger if Bitcoiners weren’t so ideological. Binance is getting in on the lending game and soon stablecoins themselves will come with some interest rate, like the Dai Savings Rate (DSR).
Go further:
- Where Stablecoins are Headed - Linda Xie Link
- Beyond USD - the Next Frontier for Stablecoins Link
- Binance Enters Crypto Lending Space, offers BNB, ETC and Tether Link
- The State of Stablecoins - Consensys Link
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Chart of the Week: Trendy Berlin
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The DeFiant compiled submissions to the ETHBerlin in this nice waterfall chart. Interest in DeFi was almost assumed, but optimism for DAOs has finally recovered since the fall of The DAO.
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Ethereum's Moat Gets Deeper
Tether didn’t start on Ethereum but 40% of its transactions occur on it now and is “gobbling up capacity” on the Ethereum blockchain, according to Bloomberg. Meanwhile, prominent Ethereum skeptics are conducting an SEC-registered IPO token sale on Ethereum. As dozens of other VC-backed smart contract platforms launch, many DeFi projects wondered whether it should build Ethereum or work chain-agnostic until the smart contract wars reside.
Synthetix, a derivative-based synthetic exchange, decided to build on Ethereum and EOS. That decision was a mistake, according to founder and CEO Kain Warwick:
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The harsh reality is that we were dead wrong here. Rather than diluting our focus, which likely set us back 3-6 months we should have doubled down and put all of our effort into Ethereum.
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Synthetix is perhaps the most complex (and risky) DeFi project that has found success, and the project’s community has been active in engaging with other parts of the DeFi ecosystem, like their Uniswap-staking rewards campaign. But Warwick argues that the developer tools on Ethereum are so far ahead (emphasis added):
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Our CTO, Justin, spent several months doing R&D into deploying Synthetix onto EOS. What he found was that the tooling was extremely immature and that in order to support a complex smart contract suite it would have taken significant effort to even approach the level of functionality available on Ethereum at the time. This gap has only increased during crypto winter as the Ethereum ecosystem has grown while other smart contract platforms are yet to launch or have stagnated.
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Launching is one thing, but attracting users and significant amounts of capital is just as important. The wallets are important, but the money-ness of Ethereum (or stablecoins like Dai) are distinguishing features of the Ethereum ecosystem, says Warwick:
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The final component and probably the most powerful one is that Ethereum is the only smart contract platform where both Ether and some tokens have begun to capture a monetary premium. Dai is probably the best example, but this has a compounding effect as new contracts can tap into this and leverage it to bootstrap quickly. Uniswap was able to utilise the Ether monetary premium to rapidly scale a new type of decentralised exchange. This would be far harder on a platform that had a base layer asset with lower liquidity and total value. There is literally billions of dollars worth of Ether waiting to be deployed into novel user cases, no other smart contract platform can reasonably hope to compete with this in the short to medium term.
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The piece is worth reading in full. Some projects that have already generated traction, liquidity pool-based exchanges like Uniswap, are easy to port to other chains (DEXter is attempting to do this on Tezos) but the size and money lego-ness of the Ethereum ecosystem will make it the center of DeFi innovation for at least another couple of years.
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Tweet of the Week: Mainstream Attention
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Listen of the Week: Cross-Chain Possibilities
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James Prestwich and Matt Luongo discussing tBTC, a trustless representation of BTC on Ethereum, on Wyre Talks. There is no easier way for DeFi to 10x its market than BTC on Ethereum.
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- OpenZeppelin completes audit of Compound's smart contracts Link
- Numerai team launches Erasure, builds on Data Science tourney Link
- Ethereum Foundation announces $2m in grants fo ETH2.0 development Link
- Coinbase launches WalletLink to connect dapps to desktop browsers Link
- xDai, layer 2 payment channel, raises $500k in seed funding Link
- Massive scam, PlusToken, transacted over 2m ETH Link
- Tether's RMB stablecoin is not popular in China Link
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Thoughts and Prognostications
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- tBTC: advantages and disadvantages [Token Daily] Link
- How lending pool interest rates actually work [Hydro Protocol] Link
- Teo Lebowitz on Binance, lending and open finance [The Block] Link
- Vitalik speaks to his hometown newspaper [Toronto Star] Link
- On mass adoption [Cryptowatch & POV Crypto] Link
- Stephen Palley, Ryan Selkis, Joe Lubin & Vitalik at Dappcon [Best in Berlin] Link
- The Race to Zero: Berlin Blockchain Week & Currency Wars [Ryan Selkis] Link
- Bitcoin and Macroeconomic Uncertainty [Galaxy Digital] Link
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Chart of the Week: New Compound Assets
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Votes (as of 7pm ET) for the newest asset to be added to Compound. The vote, ocurring on-chain and based on the amount of interest earned on Compound, has seen participation soar as we inch closer to today's deadline.
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Long Read of the Week: Negative Rates in 19th Century
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NPR’s PlanetMoney Newsletter dives into the intriguing life of Silvio Gesell, who wanted to create money that would “rot like potatoes” thereby encouraging people to spend it. Each bill would expire unless they were periodically stamped for a fee. With negative interest rates in Europe, China set to launch a digital RMB, and super-Central Banker Mark Carney, calling for a virtual currency “alternative to the dollar”, its easy to see how cryptocurrencies could fight against (or roll with) global monetary trends.
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