If there is another truly crypto-native PayFi platform or stablecoin project on the market, in the existing crypto ecosystem, I think it will only appear in the Solana ecosystem.
Moderator: Yaoyao, Solana Foundation
嘉宾：Jason，Co-Founder Solayer；Anna，Founder of Perena；Yetta，Investment Partner of Primitive Ventures；Zixi，Investor of MPCI；Chris，Founder of Unipay
This roundtable specially invited official members of the Solana Foundation and a group of builders in the ecosystem to talk about the development and prospects of the Solana stablecoin track.
Host: Please allow the guests to introduce themselves.
Jason: Hello everyone, I am the co-founder of Solayer. I had some experience in the field of encryption when I was in high school, and I really started to enter this circle in college. The encryption market is highly globalized and very sensitive to technology, so I have been exploring the encryption field myself.
Anna: I am the founder of Perena. I was previously in charge of the stablecoin business at the Solana Foundation. I started out working on payment-related projects, but later found that people didn’t have any stable assets in their wallets for payment, so now I am working on stablecoin infrastructure. We are also supporting Solayer’s sUSD recently, and we may have more information for you in the next two days.
Yetta: Hello everyone, I am Yetta. We have been betting on the stablecoin track since 2017 and 2018, including TUSD in 2018, algorithmic stablecoins in the last cycle, and Perena and Ethena in our investment portfolio this cycle. Since I have a financial background, I have always been very interested in stablecoins.
Zixi: Hello everyone, I am Zixi. I am currently in charge of the crypto business at Matrix Partners China. At the same time, I also have a relatively small fund to invest in some early-stage projects. We are more concerned about AI recently, and the other one is actually payment. But this year, we have seen a lot of stablecoin projects, and we also talked about various types of compliant legal currency-collateralized stablecoins in Hong Kong. After we finished talking, we did some calculations and felt that it was actually quite difficult to invest, and there would be some practical concerns.
Chris: My name is Chris. My partners founded Unipay, an infrastructure based on on-chain credit payment. In the past 10 years, I have participated in the design and development of some anti-money laundering mechanisms, and also worked on traditional e-commerce payment channels, and later on DeFi protocols.
Host: Compared with the previous cycle, what innovations have you seen in the mechanisms and models of stablecoins in this cycle? Which stablecoin players in this cycle are you particularly concerned about?
Jason: First of all, I think there is still a lack of stablecoin projects in the Solana ecosystem. Here I will mainly compare the differences between sUSD and USDe. First of all, all the designs of SUSD follow one principle, which is simplicity. sUSD is a synthetic stablecoin supported by RWA. Second, sUSD has a dedicated market maker to do the inquiry mechanism, which can complete T+0 direct account arrival, and users will feel very smooth and simple when operating. The whole mechanism is very simple and safe, but at the same time the annualized rate of return is relatively low. We can give 4.4%~4.5%. The income comes from the U.S. Treasury RWA token collateral behind sUSD, so its risk is also very small. Ethena has a hedge fund that provides services to the outside world and tokenizes the services. Ethena's returns are very high, but the risks are very high. In fact, sUSD cannot be called innovation. It is more positioned as risk-free returns. Our returns may be relatively stable and directly linked to the yield of treasury bonds. Our risks will be relatively low and transparent on the chain.
Anna: I really appreciate sUSD launched by Solayer. Although it is not the first stablecoin supported by RWA, its mechanism design is very good. In fact, in the past two years, there have been many stablecoins linked to US Treasury bonds, but they often fail to realize related functions due to the relationship with market makers, including design reasons, and the user experience is also very poor. Because US Treasury bonds are securities, if you want to return the interest to users, you have to use more creative ways. First of all, the industry generally recognizes that pure algorithmic stablecoins may not be a correct stablecoin solution, and now everyone is working towards stablecoins linked to US Treasury bonds, but if you look at the actual use, most people are not using this thing to save value or balance risks. Third, I think some of the infrastructure of stablecoins actually mainly exists off-chain, and on-chain infrastructure is still relatively lacking. This is why I have other projects that want to build pure on-chain stablecoin infrastructure. At present, there is no infrastructure that combines off-chain and on-chain well. The operations behind some cross-chain bridges are almost purely offline, while Perena and Maker are basically pure on-chain, and there is almost no practical use or application off-chain.
Yetta: In this cycle, the entire industry is actually moving towards the integration of on-chain and off-chain and more real application scenarios, rather than just some complex designs on stablecoin mechanisms like in the previous cycle.
Zixi: I think Ethena is the most perfect project we have seen in the past two or three years, in fact, there is no other. We did not invest in its first round of financing because we did not have the quota, and then participated in the investment in the second round. The income of stablecoins is actually related to the asset management scale and interest rate, that is, stablecoin developers either expand the asset management scale or increase the interest rate. Projects that expand the asset management scale include Tether and Circle. Another direction is to increase the interest rate like Ethena. We took a look at the data of Ethereum's funding rate arbitrage for 3 to 4 years. Only in the deep bear market, the funding rate was negative for 15 consecutive days, which means that there will be more people opening shorts than those opening longs, so those who open shorts need to subsidize the fees of those who open longs, and the entire funding rate is negative. This means that there are more than 300 days of positive funding rates in 365 days a year, and it is still profitable overall.
Funding rate arbitrage is not something that everyone can do. Only large market makers can do this. Ethena has decentralized something that was originally only done by centralized institutions. Ethena is the fastest stablecoin project in history to reach $100 million in revenue, reaching $100 million in just 251 days. After subsidizing users' pledge interest, the company can also make various subsidies. In the next 2 to 3 years, the market may be in a long-term low-interest environment. I am very pessimistic about assets supported by TVL. We did some calculations. Once you want to cooperate with some large market makers or exchanges, you must share at least 20 to 30 percent of the gross profit. If it is a large exchange, you must share at least 60% of the gross profit before the exchange will support you to list your currency.
After we calculated, we found that we need at least 3 billion USD in assets to break even. And there will be a lot of strong compliance fees. Of course, after we calculated this, I still think it is very unreasonable, which means that stablecoin projects with less than 3 billion USD in assets are still losing money.
Chris: Compared with the previous cycle, we can see some major changes in the collateral assets and arbitrage mechanisms of stablecoins in this cycle. On the one hand, there is the diversification of collateral assets, and then there is the integration of off-chain and on-chain arbitrage, which also provides some new possibilities for the price anchoring of stablecoins. For example, in terms of pure DeFi, I actually want to mention our upcoming Liquid V2 and multi-collateral solutions, where users can optimize price adjustments through custom interest rate markets and some new methods. Compliance paths and liquidity optimization of funds are our focus, especially in reducing costs and improving efficiency. I am now more concerned about payment routes. People are beginning to realize that settlement and channel business are the real source of profit, not buying government bonds.
Moderator: Primitive Labs invested in Ethena, which has now expanded to the Solana network. It has also invested in Perena, and Yetta has also done a lot of research on stablecoins. When did you start looking at this track? What aspects do you mainly evaluate when looking at projects in this track? What types of projects do you think have more potential and space?
Yetta: We started to provide support when Ethena raised its first round of funding. The entire mechanism of Ethena gave us a refreshing feeling. The scenario that Ethena found was how to help stablecoins find a better way to earn interest. It used off-chain hedging strategies and produced a good rate of return after historical data testing. Ethena also happened to catch up with the bull market from the second half of last year to April this year. In addition, their team's execution ability is also very strong. Whether it is financing, or allowing USDe to enter various DeFi ecosystems, and becoming a currency equivalent for centralized exchanges, these executions are also very in place.
If you look at stablecoins, I think the most important things are actually utility and liquidity. Utility is what you want to do with stablecoins and what scenarios it uses. The utility of Ethena is to allow everyone to earn higher returns. In fact, Tether's earliest utility was to act as a currency pair, similar to a unit of account. Later, during the DeFi Summer, USDT had a demand to act as liquidity on various chains. Then it acted as a shadow dollar, existing in upstream and downstream transactions in areas with severe inflation, economic sanctions, and various gray areas. Therefore, the utility of stablecoins must be clarified first. The second thing is to consider liquidity, because stablecoins are a circulating currency, so their moat actually comes from liquidity, that is, the wider your network is, the more upstream and downstream will use your stablecoins, and its moat will be very deep.
Zixi: For example, I am currently working on a stablecoin project, and the income mainly comes from overnight reverse repurchase of US Treasury bonds, with an overall asset size of 1 billion. The interest rate of overnight reverse repurchase of US Treasury bonds is now about 4.5%~5%. Ideally, 100% of the assets are in circulation, but in reality this is not the case. In some companies we surveyed, the capital utilization rate is actually not 100%, and 70%~80% is actually very good. For some large market makers, they may charge 50~60% of the stablecoin income. Once you cooperate with an exchange, your gross profit may be lower. After calculating this, the net income for a year may be 20~30 million. Then considering that the next two or three years are actually a low-interest environment, you cannot guarantee that the overall interest rate is 4.5%. When the interest rate drops by half, the overall asset size must be doubled to maintain an annual income of 20 million US dollars. In addition, compliance and labor costs are also very expensive. In the end, you may not be able to break even with an annual income of 20 million US dollars. Circle has not yet gone public. If you follow this logic, you will find that Circle is not very profitable. So I am still quite pessimistic about equity investment in stablecoins. But we have seen some new uses for stablecoins, especially in countries with imperfect financial markets such as Latin America. For example, traditional banks in Latin America are doing very poorly, and the attrition of cross-border payments is around 2%~3%, and it takes about 2 to 3 days or even longer. We see that some companies are actually doing cross-border payments in Latin America. The entire on-chain transfer process may only take a few minutes or even shorter. Even if you don’t have a license, the attrition of funds for OTC can be as low as 0.3%-0.4%. We see that Circle is also expanding their related businesses.
Moderator: Solayer recently released sUSD, the first RWA-backed stablecoin asset. What are the special features of sUSD compared to other stablecoins? Why did you choose to enter the stablecoin business?
Jason: We are not a stablecoin company, but a re-staking platform, similar to EigenLayer, a re-staking platform based on Ethereum, and Solayer is a re-staking platform based on Solana. Compared with Ethereum, Solana has fast transaction speed and low cost, and Solana is large enough, so we want to build a re-staking platform based on Solana, sharing security mechanisms with some on-chain and off-chain projects. We think this demand exists and is huge. We also found the demand for low-risk interest-bearing stablecoins, so we launched sUSD. For sUSD, we want to make it an independent branch, because it can not only be used for re-staking, but also circulate in the Solana ecosystem. sUSD is not like Ondo's completely self-made stablecoin. What we are essentially doing is a decentralized channel protocol, and the market makers using our channel protocol are the real stablecoin issuers, and the user's funds will not pass through our hands. I think the market really needs a stablecoin like sUSD that can provide a risk-free rate of return. Our main focus is on-chain liquidity so that more people can use sUSD.
Moderator: Perena is the infrastructure of stablecoins, providing a liquidity layer for stablecoins of different networks and platforms. Anna was also in charge of the stablecoin business at Solana. What scenarios and needs made you start thinking about the Perena product? What are Perena's unique advantages?
Anna: What we can foresee now is that new stablecoins will continue to appear in the future. Even in the case of low interest rates and low gross profit margins, many large institutions will indeed come in. Then when a new stablecoin appears, it will inevitably encounter such a situation, that is, it needs to compete with the native stablecoin in the market. It is very difficult to open the market in the early stage. And Perena’s idea is that all new stablecoins can be placed in Perena’s one-way liquidity pool as long as they come in, and then the liquidity on the other side is provided by our centralized stablecoin pool. At present, this is a liquidity pool of 3 billion US dollars, which may become 5 billion or even 7 billion US dollars in the future. The second is that I hope that all stablecoins in the future will not be completely collateralized by US bonds, but can have diversified collateral. We can collect other highly liquid assets on or off the chain for collateral. Anyone can deposit interest, or mortgage loans, etc.
Traditionally, when you pledge a highly liquid asset to borrow money, you may have to wait three months, during which the lender or bank will ask you a lot of questions or do other investigations. If you do a mortgage loan on the chain, as long as you pledge a highly liquid asset, you can get the corresponding loan immediately. We hope to enable everyone to use stablecoins better and get some deserved interest in the process of using stablecoins. For example, as a holder of USDT, we are actually taking the risk of Tether's bankruptcy. Tether should give us some interest, but it doesn't.
Chris: The project we are working on is called Unipay, which allows users to generate on-chain credit through multi-asset pledge. The generated on-chain credit is similar to a stablecoin, but it has polymorphic properties. It can be anchored to any currency. For example, users can pledge any interest-bearing assets of equal value to obtain an equivalent amount of US dollars. This credit line can be directly transferred to a wallet address or bank account through our Unipay. We are currently open-sourcing a series of payment SDKs to help users use our on-chain credit payments in different scenarios. We hope to turn it into a stablecoin abstraction. Because we were doing on-chain compliance infrastructure earlier, we would aggregate some off-chain and on-chain behaviors and create a credit value for each address. Based on this credit value, we make some compliant privacy transactions and unsecured lending products. Unipay is a project built on compliance infrastructure. We are now working hard to promote some bank-related businesses, such as how to distribute assets more reasonably through credit and T+0 settlement.
Host: Under the current competitive situation, what opportunities does the Solana ecosystem stablecoin business have?
Jason: We mentioned above that stablecoins supported by RWA are very difficult to make. We are willing to try it on Solana, mainly because we see a good opportunity at the moment. First of all, stablecoins are very compatible with our project, and then we know that users have this demand, so we want to see if we can seize the market in a short time. When we connect with other protocols and wallets, the market response is also very good. Second, a lot of funds are now entering the Solana ecosystem, so it is easier to get capital support for projects on Solana. For example, the Solana Foundation has provided great support to us. Third, we have a complete set of API systems and account systems. When new projects emerge, it is also very easy for us to connect, which is very important for a new project to enter the market.
Anna: From the data point of view, the scale of Solana stablecoin is far less than that of TRON and Ethereum, but I am still very optimistic. Because from the perspective of payment and application, Solana has much greater imagination and use space than Ethereum. I also don’t want to see Solana become a USDC chain. As a public chain, if there is only one stablecoin, there will actually be risks such as supervision and centralization. Optimistically, the Solana ecosystem will have many stablecoin issuers coming in in different ways, and then a small number of them will find special use scenarios to expand the entire market. In this case, Solayer and Perena can both allow users to more easily access different types of underlying stablecoin assets and use them in a decentralized way.
Yetta: Compared to stablecoins, I think PayFi is more important. First of all, stablecoins are a very difficult track, but PayFi involves fund lending and capital utilization, which is a strong demand. And when PayFi is available, the emergence of stablecoins will be a natural thing. We believe that Solana has great prospects in the field of PayFi, so in this process, there will definitely be native PayFi projects and stablecoin projects suitable for the Solana ecosystem.
Chris: If there is another truly crypto-native PayFi platform or stablecoin project, I think it will only appear in the Solana ecosystem in the existing crypto ecosystem culture. There are many gray areas for transfers and cross-border transactions in places like South Africa and Latin America, and there is good arbitrage space. I think cross-border settlement through Solana will promote the development of local PayFi and stablecoins.
Zixi: It is still meaningful to do payment in underdeveloped countries, but the overall scale of PayFi in underdeveloped countries will not be very large. We systematically looked at about seven or eight projects, and the revenue was not as impressive as we imagined. In addition, using U payment to replace the traditional payment system in a new market is still a big challenge. Overall, we are still in a very early stage.
