Tweet

Ryan Watkins

29 Jun, 10 tweets, 3 min read

In coming weeks it is very likely USDT’s share of the stablecoin supply on Ethereum will fall below 50% for the first time.

USDC is quickly emerging as the dominant stablecoin on Ethereum in large part due to its growing role in DeFi.

1/

Over 50% of the USDC supply now sit in smart contracts - equivalent to ~$12.5 billion.

Although this percentage is not as high as DAI, USDC leads by a wide margin in dollar terms and has become the preferred stablecoin in DeFi for now.

Unsurprisingly lending protocols MakerDAO, Compound, and Aave are the largest consumers of USDC, holding ~23% of the USDC supply.

USDC in MakerDAO is primarily used to support the DAI peg via the Peg Stabilization Module.

USDC in Compound and Aave is deposited to earn yield.

https://twitter.com/compoundfinance/status/1409590399794962435

With the pending launch of Compound Treasury and a swath of initiatives centered around Circle’s DeFi API it is very likely this trend will continue meaning more dollar liquidity will funnel into DeFi.

https://twitter.com/compoundfinance/status/1409590399794962435

https://twitter.com/scott_lew_is/status/1409868571782664196

While this will certainly dilute yields for depositors it will be incredibly valuable in driving adoption of DeFi lending protocols which have historically faced a shortage of dollar liquidity (primary reason rates have been so high).

https://twitter.com/scott_lew_is/status/1409868571782664196

The question from here on out is how much DeFi will continue to rely on centralized stablecoins as it continues to grow.

Centralized stablecoins have always been a nice gateway for bringing liquidity into DeFi and avoiding the volatility problem, but never the long-term solution

DAI’s progress towards this is promising, but even still only has ~8% market share.

Ironically it’s also becoming increasingly reliant on USDC via its peg stabilization module.

There’s still no decentralized stablecoin project that’s come close to the success of MakerDAO, but there’s a ton exploring the design space of decentralized stablecoins in search of alternative solutions.

https://twitter.com/RyanWatkins_/status/1375078200980742153

The most interesting of this batch aim to eliminate dollar dependency altogether.

https://twitter.com/RyanWatkins_/status/1375078200980742153

In any case, decentralized stablecoins, led my DAI, continue to be one of if not the most important building blocks in DeFi to get right long-term.

• • •

Missing some Tweet in this thread? You can try to force a refresh

This Thread may be Removed Anytime!

Twitter may remove this content at anytime! Save it as PDF for later use!

More from @RyanWatkins_

Ryan Watkins

@RyanWatkins_

29 Jun

There are many reasons why Ethereum may become more widely adopted than Bitcoin.

But the most under-appreciated reason is that Ethereum offers a progressive vision that is likely to resonate with more people and better captures the zeitgeist of our times.

Think of blockchains like nation states, but with the difference being that it’s trivial to enter and exit. What excites the most people to migrate and stay?

I’d be shocked if it is a restorative vision as Bitcoin is often framed as.

That sounds wack to most people.

This becomes more important the more you believe that the path to mainstream adoption is more people and capital migrating to the cryptoeconomy than the opposite - the cryptoeconomy embedding itself into incumbent institutions.

Blockchains need to sell a compelling story.

Read 4 tweets

Ryan Watkins

@RyanWatkins_

24 Jun

I’m increasingly skeptical of the economic viability of pegged asset protocols.

The issue is that decentralized custody - a requirement for such protocols - is an inherently low margin business and won’t provide enough returns to nodes to sufficiently incentivize security.

1/

Fundamentally nodes securing pegged assets must have more at stake than the assets they’re custodying.

So if nodes custody $1 billion they must have more at stake than $1 billion otherwise they’d just steal the assets they’re custodying.

The above is why many of these protocols such as Ren and Keep have overcollateralizion requirements - it’s necessary for security in an environment where you can’t rely on trust.

The issue boils down to incentivizing those nodes to put up enough stake to secure assets custodied.

Read 14 tweets

Ryan Watkins

@RyanWatkins_

23 Jun

https://twitter.com/ohmzeus/status/1378756204369960969

Olympus DAO now owns 98% of its own SushiSwap liquidity.

Impressive asset to have built organically through its bonding mechanisms.

Protocol controlled value is powerful for stablecoin projects as it allows them to reduce dependence on third party actors for currency management

https://twitter.com/ohmzeus/status/1378756204369960969

Continue to believe non-dollar pegged stablecoins are the most exciting area of decentralized stablecoins. messari.io/article/the-ar…

Basically the idea here is that by being the primary liquidity provider for OHM Olympus DAO can take actions that wouldn’t be rational for an external actor to do without paying them, but rational for Olympus DAO to do because it’s cost of capital is 0%.

Read 4 tweets

Ryan Watkins

@RyanWatkins_

17 Jun

Seeing a lot of lazy criticisms about algo stablecoins recently.

It’s the easy take to have after seeing all the Ponzi games.

But if you think that’s all there is to to the sector, you’re missing out on a handful of promising projects like Terra, Frax, RAI, and Olympus DAO

1/

Terra in particular, is beyond promising - its real.

Its UST stablecoin is one of if not the most widely adopted decentralized stablecoins in circulation with real world use.

We’ve had a ton of our community analysts cover these projects recently.

Terra
messari.io/article/terra-…

Read 7 tweets

Ryan Watkins

@RyanWatkins_

15 Jun

We live in a multichain world.

Today there are 10 blockchains storing more than $10 billion in assets, as well as several ecosystems with meaningful development and activity.

THORChain is vying to sit at the center of this world as infrastructure for cross-chain finance.

1/

For nearly a decade people have speculated about the potential for decentralized exchange between blockchains with some conceptualizing it as the “holy grail”.

Today it’s still largely an unsolved problem at scale.

THORChain is an attempt at fulfilling this vision.

It is a cross-chain liquidity protocol built using the Cosmos SDK that aims to provide a variety of cross-chain financial services including exchange, lending and borrowing, and synthetic assets.

messari.io/article/thorch…

Read 13 tweets