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Foundation of the On-Chain Economy

Stablecoins are the first crypto asset to have achieved true product-market fit globally, dominating trading pairs across centralized and decentralized exchanges. In 2023, stablecoins facilitated over $12 trillion in on-chain transactions, accounted for over 90% of trades, and constituted between 20-40% of total value locked (TVL) on the largest DeFi protocols.

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Centralization Considered Harmful

DeFi democratizes access to markets through innovative and permissionless investment instruments only possible on the blockchain. Stablecoins play a critical role in DeFi as a fixed store of value and liquidity for traders, analogous to fiat currencies like USD in traditional financial markets. However, the dominant stablecoins on the market today carry significant centralization risks which make them misaligned with DeFi’s stated mission.
  • Dependence on central banks. USDC and USDT are collateralized by treasury bonds whose yields are subject to the agenda of the Federal Reserve.
  • Un-hedgeable custodial risks. Evolving country-specific regulations place the bank accounts holding collateral at risk of censorship and seizure.
  • No rewards, only risk. Circle and Tether internalize the yields generated from backing assets while subjecting users to depegging and inflation.
Recent history has demonstrated the risks inherent to centralized stablecoins, with government agencies and corporations intervening in their issuance, redemption, and transmission.

Circle's USDC

depegged below $0.87 following the collapse of Silicon Valley Bank in March 2023, as the market reacted to the loss of collateral assets managed by the bank.

Binance USD (BUSD)

was labeled an unregistered security by the SEC in February 2023. Binance’s issuing partner Paxos then ceased issuance of BUSD, exposing users to the regulatory “kill switch”.

Tether's USDT

depegged in December 2023 following its announcement of an “asset freeze” mechanism in response to corruption investigations by the DOJ, SEC, and FBI.