Stablecoins II

May 5, 2022 • 11 Min Read
The video in this report is only accessible to members

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 ...

Unlock this page with a FREE 30-Day Trial!

*Free trial available only on a monthly plan

Reports you may have missed

Get invaluable analysis of the market and stocks. Cancel at any time. Start Free Trial

Articles Read 1/1

🎁 Unlock 1 extra article by joining our Community!

You’ve reached your limit of 1 free monthly articles. Please enter your email to unlock 1 more articles.

Already have an account? Sign In