Stablecoins II
In the last issue of DeFi Digest, we discussed the need for stablecoins to have utility to maintain their pegs, before diving deep into the different kinds of stables. Now that we have a lay of the (stables) land, we extract essential lessons from stable projects which have come and gone before us. Then, we take a step back to examine the dilemma stablecoins face from first principles.
While the projects below may have different peg-maintaining characteristics and catalysts for their downfall, they have two things in common:
- Lack actual utility / demand for them apart from high Pool 2[1] yields
- Inflate beyond organic demand and suffer from the repercussions of such in a sharp irreparable downturn
Graveyard of Stablecoins Past
While asset-backed stables are relatively ‘safer’ than algo stables, they are not exempt from de-peg risk. Remember, utility is pivotal for stables to maintain their peg, arguably more so than the mechanisms through which stables maintain their pegs.
Having said that, more algo stables projects have been created (and failed) relative to asset-backed stables given their superior capital efficiency and experimental nature. This is because algo stables do not need to custody USD for every ...Reports you may have missed
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