Decentralization Stablecoin Market Analysis: The Race is Not Yet Over, Who Will Claim the Championship?

Stablecoins, as an important infrastructure of the cryptocurrency ecosystem, have always been the focus of competition among various forces. Based on the degree of decentralization, stablecoins can be divided into two main camps: centralized and decentralized. As long as they are not completely decentralized, stablecoins face the risk of default brought by centralization.

As regulatory threats become increasingly imminent, Decentralization has become a key attribute of stablecoins. However, the vast majority of stablecoins currently on the market cannot serve as the base currency of the crypto world, and more often play the role of commercial bills. A successful stablecoin mechanism not only needs to become a general equivalent but also needs to create unique economic activity scenarios.

The centralized stablecoin sector has basically settled, with USDT and USDC difficult to distinguish. Although projects like CrvUSD still contain centralized risks, they have relatively complete functional modules and certain development potential. In contrast, the field of decentralized stablecoins is currently almost a desert, but there is underlying demand, presenting potential opportunities in the future.

Why do we need decentralized stablecoins

Decentralized currency has existed in history, such as early physical exchanges and debt currency. In modern times, the purpose of issuing stablecoins is to increase credit, while centralized stablecoins lack true minting authority. Crypto fundamentalists believe that the right to issue currency should be controlled by decentralized networks rather than being monopolized by centralized institutions.

Centralized stablecoins always face centralization risks, and their credibility is easily questioned. For example, USDC marked related addresses in the Tornado Cash incident without democratic procedures. Decentralized stablecoins provide users with an alternative choice that can circumvent such risks.

User groups sensitive to centralization risks form the inherent market for decentralized stablecoins. Even if there are costs in other aspects, these users are willing to pay the price for decentralization.

Icarus Wings of Stablecoins

To achieve a positive ecological cycle, stablecoins must break through a certain scale. Small-scale stablecoins are at a disadvantage in terms of transaction costs, slippage, etc., making it difficult to attract large funds. However, once the scale reaches a certain level, it may attract the attention and suppression of traditional forces. This constitutes a dilemma in the development of stablecoins.

Stablecoin projects must either choose to become an appendage of the traditional financial system or completely break away from it, moving towards full Decentralization. There is no middle path.

Stablecoin Industry Structure Analysis

The current stablecoin market presents a "dual oligopoly + long tail" pattern. USDT and USDC dominate the vast majority of market share, while over a hundred other stablecoins compete for the remaining share.

From a functional perspective, USDT and USDC have become akin to high-energy coins, while other smaller stablecoins resemble broad currency. Many smaller stablecoins achieve liquidity by establishing trading pairs with mainstream stablecoins, essentially similar to lending operations.

stablecoin版图

Mainstream stablecoin mechanism:

1. Rebalancing mechanism: like Ampleforth, which stabilizes the coin price by adjusting the token supply.

2. Circulation restriction: Limit buying and selling when the coin price deviates from the target, such as the soft restriction method used by FEI.

3. Seigniorage mechanism: Like UST-Luna, by destroying underlying assets in exchange for stablecoin.

4. Over-collateralization: Issuing stablecoins like DAI and LUSD using over-collateralized assets.

Major Decentralization stablecoin projects:

• Liquity(LUSD): Uses only ETH as collateral, completely isolating decentralization risks, but scalability is difficult.

• Inverse Finance(DOLA): Uses decentralized assets such as ETH as collateral, and designs a flexible interest rate mechanism.

• RAI: Uses a custom index as a peg, freeing itself from the US dollar, but has a high consensus cost.

Conclusion

In the stablecoin sector, centralized stablecoins have formed a monopoly. The decentralized sector is still in its early stages of development; although the path seems unclear, it is full of hope. Decentralized stablecoins have inherent market demand, but currently, no project has formed a monopolistic advantage. There is still significant room for growth in the future.