Decentralization Stablecoin Depth Observation: The race is still on, who can claim the championship?

Decentralized currency is the source of currency. Throughout the long history of mankind, decentralized currency has appeared before. Whether it is the theory of currency as a medium of exchange or the theory of currency formed by debt, centralized credit was not involved in the currency generation process from the very beginning.

The purpose of issuing stablecoins is to increase credit issuance; centralized stablecoins do not have minting rights. We hope to create stable credit free from centralized power. Crypto fundamentalists believe that the right to issue currency has been usurped by centralized institutions. The party that holds the right to issue enjoys seigniorage, and the issuer has sufficient motivation to overissue or inflate the currency.

Centralized stablecoins are constantly threatened by centralized risks, and the credit of stablecoins can be questioned due to the credit flaws of the center, which often challenges the value of stablecoins. The trust in centralized stablecoins is not inherent. Whether it's USDC or USDT, both have faced runs due to market rumors and gossip.

Currently, the stablecoin industry is dominated by USDT and USDC, which hold the vast majority of the market share, but there are hundreds of other types of stablecoins. Aside from USDC and USDT, the vast majority of stablecoins find it difficult to obtain the opportunity to "passively" establish trading pairs. These stablecoins must rely on first being exchanged for high liquidity tokens such as USDT, USDC, BTC, and ETH before trading with the target token.

In fact, USDC and USDT have already occupied the position of high-energy coins in the stablecoin world. The vast majority of stablecoins that rely on binding high-energy coins to provide liquidity actually just offer something similar to broad money in traditional financial markets.

Since the establishment of USDT in the fall of 2014, creators of stablecoins have made various attempts at creating stablecoins. Currently, the most mainstream method is still centralized. One dollar is deposited into a designated real account, and one dollar of stablecoin assets is issued online. With the gradual improvement of government regulation, these centralized stablecoins are being blocked from risks such as arbitrary inflation or insufficient liquidity of collateral assets from a regulatory perspective.

Thus, the attempts to create credit and stability through algorithms have never ceased. The main ways to create stability in coin prices through algorithms include rebalancing stablecoins, limiting the circulation of stablecoins, minting stablecoins, and over-collateralized stablecoins.

Currently, in the stablecoin sector that includes centralized risks, the advantages brought by Curve and AAVE are worth paying attention to.

Curve itself is the largest stablecoin exchange on-chain. By directing traffic for its own stablecoin through its own exchange, it can quickly establish sufficient liquidity. Curve's stablecoins will adopt interval clearing rather than liquidation line clearing, which will reduce the losses for lenders and the protocol when liquidity is insufficient.

AAVE has active users ranked in the top ten of DeFi. Due to its long-term involvement in lending, AAVE has a deep understanding of collateral and risk. When designing GHO, various methods of generating stablecoin were considered to broaden the channels for stablecoin credit generation.

In the completely decentralized stablecoin track, the few remaining projects include:

Liquity: The collateral assets are only ETH, and the liquidity trading pairs are only pegged to decentralized tokens like WBTC and ETH, completely isolating centralized interference. However, the stability is relatively poor, lacking structural incentives for LUSD liquidity.

Inverse.finance: Use ETH and OETH decentralized assets as collateral to lend USD stablecoin DOLA. The DBR token has been designed as a tool for interest rate liquidation, making borrowing strategies more flexible and variable.

RAI: A stablecoin anchored to a custom index, breaking free from the shadow of the US dollar. However, the cost of establishing price consensus is extremely high, requiring a sufficiently large scale effect.

In summary, the stablecoin sector faces complete centralization risks as long as it is not fully decentralized. Centralized stablecoins, led by USDT and USDC, dominate the sector facing centralization risks, having formed a mature monopoly industry pattern. The decentralized stablecoin sector is still in its early development stage, with a faint path ahead but full of hope. Decentralized stablecoins have an inherent market, but no single project has yet formed a monopolistic scale advantage. Future development is still worth looking forward to.