Your Guide to the Collateralized Stablecoin Landscape

JUL 13, 2022 • 21 Min Read

DISCLOSURES: THE AUTHORS & EDITOR OF THIS REPORT HAVE MATERIAL OPEN POSITIONS IN ETH, USDC, AND DAI. THE AUTHORS & EDITOR HAVE NOT PURCHASED OR SOLD ANY TOKEN FOR WHICH THE AUTHORS & EDITOR HAVE MATERIAL NON-PUBLIC INFORMATION DURING THE RESEARCH AND DRAFTING OF THIS REPORT. DELPHI VENTURES HAS INVESTED IN ETH & ALCX. THESE STATEMENTS ARE INTENDED TO DISCLOSE ANY CONFLICT OF INTEREST AND SHOULD NOT BE MISCONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL ANY TOKEN, OR TO USE ANY PROTOCOL. THE CONTENT IS FOR INFORMATIONAL PURPOSES ONLY AND YOU SHOULD NOT MAKE INVESTMENT DECISIONS BASED SOLELY ON IT. THIS IS NOT INVESTMENT ADVICE.

Key Takeaways

  • Stablecoins are the backbone of DeFi, with nearly $150B in cumulative market cap. Of this, over 97% are in collateralized stablecoins while a small portion are under-collateralized stablecoins.

  • Holders of centralized stablecoins like USDT, USDC, and BUSD bear counterparty risk and censorship risk. Decentralized stablecoins backed by centralized stablecoins inherit these risks.

  • The current USDT collateral make-up still resembles a traditional money market fund, though they have been reducing exposure to relatively riskier assets while increasing their treasury bill holdings. Despite the market seeming to trust USDC more, USDT’s dominance as an exchange pair has made it difficult to usurp.

  • Taking into account underlying LP assets brings DAI’s USDC exposure up to 66% and centralized stable exposure to 74%. Another revelation is that 12% of DAI backing is in DAI itself, which could have severe knock-on effects if DAI depegs extensively, although we believe that to be fairly unlikely.

  • Near Liquity’s inception, there was concern regarding LUSD’s use case as almost all LUSD resided within the Stability Pool. Unsurprisingly, this resulted in illiquidity in DEXs and lending markets which made LUSD a decentralized stablecoin with low utility. However today, the Stability Pool makes up 46% of all LUSD deposits, down 73% from its April high.

  • Our analysis of the more widely used stablecoins suggests that the market currently prefers stability and liquidity over decentralization and capital efficiency. However, with stablecoin regulation on the horizon, it is likely a matter of time before centralized stablecoin providers start enforcing KYC/AML and other requirements – a move we believe will catalyze the demand for truly decentralized money.

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