Stablecoins have transformed from simple digital dollar replicas into a dynamic ecosystem of innovative financial instruments. As of late 2024, the total market capitalization of stablecoins has surpassed $170 billion, reaching its highest point since November 2022. This growth coincides with advancing regulatory frameworks worldwide and the emergence of numerous new stablecoin projects offering unique value propositions.
This article explores the latest generation of stablecoins, their distinguishing features, associated risks, and the potential future expansion of the market into the global foreign exchange landscape.
The Rise of New-Generation Stablecoins
The business model of traditional stablecoin issuers has proven remarkably profitable. For instance, Tether reported a net profit of approximately $2.9 billion in Q4 2023, while Circle's revenue reached about $779 million in the first half of 2023. Notably, these profits have generally not been shared with stablecoin holders.
This realization has spurred a wave of new projects designed specifically to distribute earnings generated from collateral assets back to the users. Furthermore, stablecoins built on Decentralized Finance (DeFi) protocols are adopting innovative strategies, with a key trend being the use of Liquid Staking Tokens (LSTs) as collateral to enhance profitability.
Unlike earlier models like MakerDAO's DAI, which used ETH as collateral but did not allow users to earn staking rewards, new projects utilize LSTs. This enables users to improve capital efficiency while simultaneously earning staking yields, driving significant innovation in the stablecoin market.
Detailed Overview of Major New Stablecoin Projects
USDY (Ondo Finance)
Launched in August 2022, Ondo Finance raised $20 million in a Series A round. Its flagship product, USDY, is a "tokenized note" backed by short-term U.S. Treasuries and bank deposits.
Key Features of USDY:
- Holders earn variable interest from the collateral assets, approximately 5.3%.
- Tokens become transferable on-chain after a 40-50 day holding period.
- Daily and monthly reports are provided by Ankura Trust, ensuring full transparency.
- To mitigate U.S. regulatory risk, USDY is exclusively available to non-U.S. investors.
- Ondo USDY LLC is a separate legal entity, ensuring bankruptcy remoteness.
- Registered with the U.S. Financial Crimes Enforcement Network (FinCEN).
As of recent attestations, USDY's collateralization ratio stands at over 102%, backed 100% by U.S. Treasuries. It operates across seven blockchain networks and is the third-largest tokenized treasury-backed stablecoin.
USDM (Mountain Protocol)
Mountain Protocol raised $8 million in a Series A round in June 2024. Its product, USDM, is an ERC-20 rebasing token backed by short-term U.S. Treasuries.
Key Features of USDM:
- Distributes yields to holders by adjusting the token supply (rebasing mechanism).
- KYC-verified users can permissionlessly mint and redeem USDM.
- Monthly reserve attestations are provided by Nephos Group.
- Bankruptcy remoteness is ensured through an independent legal entity.
- Primarily targets non-U.S. investors.
- Mountain Protocol holds a digital asset business license from the Bermuda Monetary Authority (BMA).
USDM's reserves include U.S. Treasuries, tokenized treasury funds like BlackRock's BUIDL, and stablecoins. It is currently mintable only with USDC but plans to support bank wire transfers in the future.
USDe (Ethena Labs)
Ethena Labs secured $14 million in strategic funding. Its flagship product, USDe, is a "crypto-native synthetic dollar" that aims to operate independently of traditional banking systems.
Key Features of USDe:
- Synthetic Dollar: Backed by crypto assets like stETH and balanced with derivative short positions.
- Delta-Neutral Strategy: This strategy combines collateral assets with equivalent derivative short positions to maintain a stable value pegged to $1.
- Yield Generation: Revenue is generated from staking rewards on collateral assets and funding/ basis profits from hedged derivatives. Users can stake USDe to earn yield via sUSDe.
- Censorship-Resistant: Its independence from traditional finance enhances its censorship resistance.
However, USDe carries unique risks, including funding risk (sustained negative funding rates), liquidation risk, custody risk (reliance on third-party custodians), exchange counterparty risk, and collateral risk associated with ETH LSTs.
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LISUSD (Lista DAO)
Lista DAO completed a $10 million funding round led by Binance Labs. It is an open-source liquidity protocol that offers a decentralized stablecoin loan product, LISUSD, which is termed a "de-stablecoin."
Key Features of LISUSD:
- De-Stablecoin: Allows for slight market-driven price fluctuations instead of a strict $1 peg.
- Collateral Diversity: Accepts various volatile crypto assets as collateral, including BNB, ETH, BTCB, slisBNB, and WBETH, focusing on LSTs and Liquid Restaking Tokens (LRTs) for higher yield.
- Decentralization: Aims to be a fully decentralized stablecoin, unlike others that rely on centralized assets like USDC.
Primary risks include collateral volatility and smart contract risk due to the protocol's complexity.
Primary Concerns Regarding New Stablecoin Projects
Definition Ambiguity and Regulatory Uncertainty
The novel structures of these assets create classification challenges:
- USDY/USDM: Their yield-bearing nature increases the possibility of being classified as securities.
- USDe/LISUSD: Their reliance on LST infrastructure and algorithmic mechanisms could lead to them being categorized as algorithmic stablecoins, facing stricter scrutiny.
This lack of clear definition poses a significant regulatory risk, as classification directly impacts operational limitations and compliance requirements.
Limited Utility and Intense Competition
Many new stablecoins risk being confined to the DeFi ecosystem, struggling to achieve the broad utility in international remittances, payments, and exchange support that defines established players like USDT and USDC. Furthermore, the market is becoming increasingly crowded with projects employing similar strategies (e.g., Elixir's deUSD also uses a delta-neutral strategy), intensifying competition and pressure on profitability.
Governance Token Valuation Controversy
A significant disconnect exists between the valuation of governance tokens and the actual business scale of the underlying stablecoins. For instance:
- Circle's valuation is approximately 15% of USDC's market cap.
- In contrast, ONDO's fully diluted valuation (FDV) is nearly 20x the market cap of USDY, and ENA's FDV is 1.56x that of USDe.
This suggests that market expectations for these new projects are extremely high, potentially leading to overvaluation and future market corrections.
Structural and Operational Risks
Each model carries inherent structural risks:
- USDY/USDM: Face collateral management risks similar to those experienced by USDC during the Silvergate and SVB collapses, including bank failure risk, Treasury value fluctuation risk, and liquidity risk during mass redemptions.
- USDe/LISUSD: Are exposed to smart contract hacking risk, structural risks from their complex hedging or multi-collateral systems, de-peg risk during market stress, and critical dependency on oracle systems for accurate price data.
The Next Phase: Stablecoins and the Digital Transformation of Forex
Current Market State
The stablecoin market is overwhelmingly dominated by USD-backed tokens, which facilitate approximately 90% of all crypto trading. While stablecoins pegged to other fiat currencies like the Euro, British Pound, and Japanese Yen represent a small fraction of the market, their presence is growing steadily.
Potential for Market Expansion
Several factors point toward significant future expansion:
- Forex Market Structure: The global foreign exchange market is vast and multi-currency, indicating strong latent demand for stablecoins backed by a diverse range of fiat currencies.
- Regulatory Clarity: Frameworks like the EU's MiCA and the UK's FSMA amendments are reducing uncertainty and encouraging institutional participation.
- Institutional Initiatives: Major banks, particularly in Japan with the "Project Pax" initiative, are piloting platforms for international transfers using stablecoins, signaling a move towards mainstream adoption.
- Digital Advantages: The inherent benefits of stablecoins—24/7 settlement, speed, and lower costs—are highly valuable in international汇款 and trade finance.
- Emerging Market Adoption: High adoption rates in countries like Brazil, Nigeria, and Turkey for currency conversion and payments highlight the practical utility and growth potential in these regions.
Enhanced Regulation: Stability and Arbitrage Opportunities
As regulatory frameworks solidify, they are expected to bring greater market stability and reliability. This will likely catalyze the development of sophisticated financial activities around stablecoins:
- Expanded Arbitrage Opportunities: Improved price stability will open up various arbitrage strategies, including price differences between fiat and stablecoins, cross-exchange and cross-chain arbitrage, and interest rate arbitrage between traditional finance and crypto markets.
- Development of Derivatives: A mature stablecoin market will likely see the introduction of derivatives like futures, swaps, options, and forwards. These instruments will provide investors with more tools for hedging and speculation, further increasing market efficiency and complexity.
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Frequently Asked Questions
What is a rebasing stablecoin?
A rebasing stablecoin maintains its peg by algorithmically adjusting the token supply in holders' wallets. Instead of the token's value changing, the quantity you hold increases or decreases to reflect the target $1 value, ensuring your share of the total supply remains constant.
What are the main risks of algorithmic stablecoins like USDe?
The primary risks include funding risk (paying out more in derivatives than earning from staking), liquidation risk if the hedge becomes unbalanced, custody risk from relying on third-party providers to hold collateral, and exchange counterparty risk if the centralized exchange facilitating derivatives fails.
How do new stablecoins generate yield for holders?
They generate yield primarily through the returns on their collateral assets. For treasury-backed coins (USDY, USDM), this is interest from U.S. Treasuries. For crypto-backed synthetics (USDe), yield comes from staking rewards on assets like stETH and profits from derivative positions.
Could these new stablecoins be classified as securities?
It's a significant risk. Stablecoins that pay dividends or yields directly to holders, like USDY and USDM, have characteristics that align with traditional securities definitions. How regulators ultimately classify them will drastically affect their operational requirements and accessibility.
What is the advantage of using LSTs as collateral?
Using Liquid Staking Tokens (LSTs) like stETH allows a protocol to use a single asset for both collateralization and yield generation. The staking rewards earned from the LST enhance the protocol's revenue and potential returns for users, improving capital efficiency compared to using non-yield-bearing collateral like plain ETH.
Will stablecoins replace traditional foreign exchange?
While not a full replacement in the immediate term, stablecoins offer a digital, efficient alternative for specific use cases like cross-border payments and settlements. Their 24/7 operation, faster settlement times, and potential for lower costs position them as a transformative force within the broader forex market.
Conclusion
The stablecoin market is in a period of rapid evolution, bridging traditional and digital finance. Innovative projects like USDY, USDM, USDe, and LISUSD offer new opportunities for yield and decentralization but also introduce unique risks. Their long-term success hinges on effective risk management and the ability to navigate an evolving regulatory landscape.
Growing regulatory clarity from major jurisdictions is paving the way for market stabilization and institutional involvement. Looking ahead, stablecoins have the potential to transcend their role as mere stores of value and become integral infrastructure for a digitally transformed global financial system, particularly in foreign exchange. Monitoring this evolution from technological, economic, and regulatory perspectives will be crucial to understanding the future of finance.