Traditional Stablecoins
USDT (Tether) and USDC (USD Coin) are currently the two most mainstream traditional stablecoins on the market.
USDT (Tether)
Issuer: Tether Company
Launch Time: 2014
Value Pegging: USDT is pegged to the US dollar at a 1:1 ratio, backed by Tether through reserve assets (such as cash, treasury bonds, etc.).
Market Position: One of the earliest stablecoins launched globally, it is also one of the most traded and liquid stablecoins.
Controversy: Transparency has always been a focal point of external concern, and Tether's reserve audit issues have sparked widespread discussion.
USDC (USD Coin)
Issuer: Co-founded by Circle and Coinbase, regulated by the Centre Consortium.
Launch Time: 2018
Strong Compliance: Strictly adheres to U.S. regulatory requirements, with high transparency of reserve assets, audited monthly, and publicly reported.
Value Pegging: Pegged to the US dollar at a 1:1 ratio, with reserves consisting of cash and short-term government bonds. Widely used in DeFi, payment solutions, and corporate transactions.
Market Position: Highly favored by institutional users due to its compliance and transparency, it is the second-largest stablecoin after USDT.
FDUSD (First Digital USD)
Issuer: First Digital Labs
Launch Time: 2023
Pegging Mechanism: 100% US dollars or equivalent cash equivalents (such as short-term treasury bonds) are used as reserves, maintaining a 1:1 value peg to the US dollar.
Blockchain Support: Compatible with Ethereum (Ethereum) and Binance Smart Chain (BNB Chain), primarily supported by Binance for trading, lending, mining, etc., so market acceptance is high.
DAI
DAI is a decentralized, over-collateralized stablecoin launched by the MakerDAO on the Ethereum blockchain. Unlike traditional fiat-backed stablecoins, DAI is generated by collateralizing crypto assets (such as ETH), maintaining a 1:1 peg to the US dollar (USD).
Issuer: MakerDAO
Launch Time: 2017
Value Pegging: Maintains a stable value of 1:1 with the US dollar through smart contracts and collateral mechanisms.
Operating Network: Ethereum and other EVM-compatible blockchains (such as Polygon, Optimism, etc.). It is currently the highest market cap algorithmic stablecoin.
New Type Stablecoin
Unlike traditional stablecoins, new types of stablecoins can not only maintain relative price stability but also provide additional investment returns for holders through innovative yield models.
Main characteristics of new type stablecoins:
1. By investing in low-risk assets (such as treasury bonds), staking native tokens, or structured financial strategies, provide returns to users.
2. By using assets like treasury bonds as collateral, it can maintain relative price stability and high liquidity, usable for trading or exchange at any time.
3. Combine on-chain assets with off-chain funds, bonds, etc.
1. USDe
USDe is a new type of synthetic dollar stablecoin developed by Ethena Labs, designed to provide a decentralized, scalable, and censorship-resistant stablecoin solution. It currently ranks third in market capitalization among stablecoins and first among algorithmic stablecoins.
Operating Mechanism
The core mechanism of USDe is to maintain a 1:1 peg to the US dollar through a delta-neutral strategy. Whitelisted users (usually institutions, exchanges, and large holders) can use crypto assets such as ETH, BTC, USDT, and stETH as collateral to mint USDe. Ethena Labs uses these collaterals to open corresponding short perpetual contracts or futures positions to hedge against price fluctuations, ensuring the stability of USDe's value. This strategy allows USDe to achieve stability and scalability without over-collateralization.
Currently, ordinary users cannot directly deposit ETH or BTC to mint USDe, but can purchase USDe through stablecoin assets (such as USDT, USDC, DAI, crvUSD, etc.), which helps avoid liquidation risks.
The yield of USDe primarily comes from the following two aspects
Staking Yield: When users use liquidity staking tokens (such as stETH) as collateral, these tokens generate staking yields, including inflation rewards from the consensus layer, transaction fees from the execution layer, and maximum extractable value (MEV). These yields accumulate over time, enhancing the value of USDe.
Funding Rates and Basis Yield: In perpetual contracts and futures markets, traders holding long positions typically need to pay funding rates to those holding short positions. Additionally, the basis (the difference between futures prices and spot prices) can also generate yields. Ethena Labs utilizes these mechanisms to provide additional sources of yields for USDe holders.
https://app.ethena.fi/dashboards/apy
Recently, Ethena partnered with BlackRock to launch the USDtb stablecoin, which provides yields from RWA, avoiding the risk of funding rates turning negative, ensuring stable interest income during both bull and bear markets, making Ethena a focal point of market attention.
2. USD0
USD0 is the stablecoin of the Usual Protocol stablecoin protocol, issued 1:1 with RWA assets as reserves.
Due to the price stability of Usual, the market capitalization of USD0 and Usual Protocol has remained relatively stable. However, Usual, as the mining and governance token of Usual Protocol, does not have much substantial role. Once the market begins to shift its focus, this token is destined to be abandoned like many other mining tokens.
3. Sky Dollar (USDS)
https://sky.money/
MakerDAO has officially renamed itself to Sky. Sky launched the new stablecoin USDS and governance token SKY on September 18. The existing DAI stablecoin and MKR governance token will continue to exist, and users can voluntarily upgrade their tokens.
According to the rules, DAI can be exchanged for USDS at a 1:1 ratio, while each MKR token can be exchanged for 24,000 SKY tokens; each year, governance token SKY will be distributed to USDS holders at a rate of 600 million SKY.
4. USDD (USDD)
5. BlackRock USD (BUIDL)
https://www.blackrock.com/hk
BUIDL is the first tokenized fund launched by global asset management giant BlackRock on the Ethereum network in March 2024, officially named BlackRock USD Institutional Digital Liquidity Fund. The fund aims to provide institutional and qualified investors with a digital asset investment tool pegged to the US dollar, combining the stability of traditional finance with the efficiency of blockchain technology.
Operating Mechanism
The BUIDL fund issues tokenized shares on Ethereum, allowing investors to digitally hold and trade fund shares. The fund's assets are primarily invested in high liquidity, low-risk financial instruments such as cash, US Treasury bonds, and repurchase agreements, ensuring each BUIDL token is backed by real assets, maintaining each token's stable value of $1.
In addition to Ethereum, BUIDL has expanded to multiple blockchain networks including Polygon, Optimism (OP Mainnet), Avalanche, Arbitrum, and Aptos.
Sources of Yield
Investors holding BUIDL tokens can enjoy accrued yields daily, distributed monthly into investors' wallets in the form of new tokens. The current yield is close to the yield of U.S. short-term treasury bonds, approximately 4.5%. BUIDL tokens can be transferred to pre-approved investors at any time, providing high liquidity. It will also cooperate with other DeFi-type stablecoins as reserve funds for algorithmic stablecoins to gain additional yields.
6. Ondo US Dollar Yield (USDY)
https://ondo.finance/
Operating Mechanism
USDY (Ondo U.S. Dollar Yield) is a yield-bearing dollar token launched by Ondo Finance, designed to provide investors with a digital asset linked to the US dollar that generates yield.
The value of USDY is supported by high liquidity, low-risk financial instruments such as short-term US Treasury bonds and bank demand deposits. Investors can use stablecoins like USDC to purchase USDY, and holding USDY is equivalent to indirectly holding these underlying assets. The yield of USDY is realized through the interest income of the underlying assets, calculated daily in compound form and distributed monthly to holders. Note that USDY is only available to non-U.S. individual and institutional investors, and there is a 40-day lock-up period after purchase during which it cannot be transferred.
Sources of Yield
Yield from underlying assets: The short-term US Treasury bonds and bank deposits represented by USDY generate interest income, which is directly distributed to investors after deducting management fees.
Compound Yield: The yield of USDY is calculated daily in compound form, distributed monthly, and the value of investors' holdings will grow over time.
In addition to charging fees from the aforementioned interest rate spread, Ondo also charges a 0.2% fee for redemption actions. USDY, secured by bank demand deposits and short-term US Treasury bonds, is over-collateralized by Ondo, providing a 3% first-loss position. For every $100 worth of USDY issued, there are at least $103 worth of bank deposits and US Treasury bonds as collateral. Additionally, Ankura Trust, as the collateral agent, will provide daily transparency reports containing detailed asset holdings.
Ondo aims to maintain a 65% bank deposit and 35% short-term treasury bond allocation for USDY collateral, without investing in any other assets.
Ondo Token is the native token of the Ondo Finance platform, supporting the operation, governance, and incentive mechanisms of the platform.
7. USDX Money (USDX)
https://app.usdx.money
usdx.money is a stablecoin issuance protocol launched by Stables Labs (a project created by a group of DeFi OGs). Recently, the protocol announced completion of $45 million in financing, with investors including Dragonfly Capital, Jeneration Capital, NGC, BAI Capital, Generative Ventures, and UOB Venture Management, with a valuation of $275 million.
8. Frax (FRAX)
Frax Finance was launched in May 2019 as an algorithmic stable protocol, later evolving into a comprehensive DeFi tech stack. It operates multiple business sectors including stablecoins, DEX, money markets, liquidity staking, and RWA.
The FRAX stablecoin protocol is part of the Frax Finance protocol, which maintains a 1:1 peg to the US dollar through a combination of partial collateralization and algorithmic mechanisms.
Operating Mechanism: FRAX employs a hybrid mechanism of fractional reserve and algorithmic stability. Specifically, the minting of each FRAX stablecoin requires a certain proportion of collateral (such as USDC) and governance tokens (FXS). For example, when the collateral ratio (CR) is 90%, minting one FRAX requires 0.9 USDC and 0.1 FXS. When market demand increases, the system mints more FRAX to meet the demand; conversely, when demand decreases, the system reduces the supply of FRAX. This dynamic adjustment mechanism helps maintain FRAX's peg to the US dollar.
Frax Finance introduced the Algorithmic Market Operations Controller (AMO), allowing FRAX's monetary policy to be managed through open market operations, rather than solely relying on collateral. This flexibility enables FRAX to respond more effectively to market fluctuations.
Sources of Yield:
Interest Income: Users can earn interest by staking USDC or FXS. The staked assets will be used to support the liquidity and stability of FRAX, while users can also earn corresponding yields.
Liquidity Mining: Users can earn additional rewards by providing liquidity (such as providing liquidity for FRAX on decentralized exchanges). These rewards are usually distributed in the form of FXS or other tokens.
Governance Token FXS: Users holding FXS can participate in protocol governance and earn income through minting taxes, mint/redeem fees, and more. Additionally, the value of FXS may increase with the success of the protocol, providing capital appreciation opportunities for holders.
Currently, the annualized yield of USDY is about 10%. Recently, the Frax Finance community initiated a vote on adopting BlackRock's US Dollar Institutional Digital Liquidity Fund Limited (BUIDL) as reserve assets for the stablecoin Frax USD (frxUSD). As a positive signal, FXS saw a price increase, which isn't really a significant positive.
9. Resolv USD (USR)
https://resolv.xyz/
Sources of Yield:
Yield generated from ETH collateral
Profits from hedging operations
These yields will be distributed daily to users holding stUSR.
10. M By M⁰ (M)
https://www.m0.org/
M⁰ is a decentralized stablecoin protocol where approved participants can mint M tokens based on approved collateral. Users of M⁰ can earn yields from the collateral while using dollar stablecoins. The core team of M⁰ comes from projects like MakerDAO and Circle. This protocol was initially launched on Ethereum and will later expand to other L1 and L2 networks.
Operating Mechanism:
1. Collateral and Minting:
Minters need to deposit off-chain collateral approved by the protocol (such as treasury bonds) and obtain approval through validators to generate M stablecoins. The collateral ratio is set by the protocol to ensure the value of each M is linked to 1 US dollar. The protocol maintains the stability of M through arbitrage mechanisms. If the market price of M deviates from its peg, arbitrageurs will buy or sell M to bring its price back.
2. Custody and On-chain Verification:
Custodians operate independently, storing collateral and periodically verifying asset values on-chain. Validators are responsible for supervising the behavior of minters and taking measures to restrict activities in case of violations.
3. Prevent improper behavior of minters through delayed minting and penalty mechanisms.
Sources of Yield:
1. The collateral deposited by minters, such as treasury bonds or other low-volatility assets, generates passive income.
2. The minting fee paid by minters to generate M.
3. A one-time penalty will be charged to minters who fail to timely update collateral values or maintain compliance, for the stability of the protocol.
11. yala
https://yala.org/
Yala is a stablecoin protocol based on the Bitcoin ecosystem. Currently still in the testnet, you can participate in tasks for an airdrop opportunity!
Yala completed $8 million seed round financing, led by Polychain Capital and Ethereal Ventures, with participation from Galaxy, Anagram, ABCDE, Amber Group, HashKey Capital, Satoshi Lab, and UTXO Management, with a valuation of $275 million.
Operating Mechanism
Users connect their BTC wallets and deposit BTC or UTXO assets into Yala Finance to borrow the stablecoin $YU.
Choose DeFi protocol products that cooperate with Yala, such as staking, restaking, or liquidity mining protocols, to achieve asset appreciation.
Withdraw the initially deposited BTC while converting additional yields to BTC and returning them to the user's BTC wallet.
Sources of Yield
Users earn additional yields by investing borrowed $YU into cooperating DeFi protocols (such as staking and liquidity mining), ultimately returning these yields in BTC.
Stablecoin Summary
The stablecoin market is huge, serving as the cornerstone of DeFi and also as the foundation for subsequent PayFi. For a long time, stablecoins like USDT/USDC, which use fiat currency as reserves, should still take precedence. Some algorithmic stablecoins may temporarily gain popularity due to their algorithms or platform tokens, but in the long run, it still depends on the platform's business development capabilities, whether it can gain recognition from exchanges, and whether it can be recognized by more DeFi protocols. The new types of stablecoins are mainly divided into two categories: one uses traditional financial assets like treasury bonds as reserves, providing yield but not much, while those with high yields like usual are incentivized and subsidized by platform tokens, which are distributed daily. If the market can continuously absorb it, stability can be maintained; otherwise, they will ultimately go to zero. The other maintains the balance of stablecoins through arbitrage, but this is opaque, unregulated, and not safe enough, destined to develop around on-chain DeFi.
However, the market value bubble of stablecoins can be inflated significantly, such as BUIDL, which maps off-chain assets to on-chain and can be used as reserve funds to generate FRAX stablecoins. The FRAX stablecoin can also serve as reserve funds for other new stablecoins, but essentially, there is only one reserve behind it. In facing stablecoins, what we can do is search for new stablecoin protocols, lay out early, participate in airdrops, and stake for rewards, avoiding taking on platform tokens!
