Decentralization stablecoin: The race is still on, who will emerge victorious?

In the field of cryptocurrency, stablecoins have always been regarded as important infrastructure. From the early centralized stablecoins to various algorithmic stablecoins, this sector has undergone years of development, and the landscape is still changing. This article will delve into the current state of the stablecoin market and explore the opportunities and challenges of Decentralization stablecoins.

Stablecoin Market Overview

Currently, the stablecoin market is still dominated by centralized stablecoins, with USDT, USDC, and BUSD accounting for over 90% of the market share. Among decentralized stablecoins, DAI and FRAX are relatively large, but they also face centralization risks. Completely decentralized stablecoin projects are still in the exploratory stage and are relatively small.

Although centralized stablecoins are large in scale, the centralized risks they pose cannot be ignored. In recent years, several centralized stablecoin projects have faced regulatory penalties or been forced to cease issuance. This highlights the necessity of decentralized stablecoins, providing a means of stable value storage that is resistant to censorship in the crypto world.

The Significance of Decentralization Stablecoins

The significance of decentralized stablecoins is mainly reflected in the following aspects:

1. Provide a censorship-resistant stable value storage means
2. Avoid the control of centralized institutions over the value pricing power of the crypto world.
3. Achieve true Decentralization of credit creation
4. Meet the needs of users sensitive to centralized risk

Although centralized stablecoins have advantages in scale and cost, decentralized stablecoins are more attractive in preventing centralized risks. As the cryptocurrency industry develops, the demand for fully decentralized stablecoins may increase.

Stablecoin Mechanism Analysis

The current mainstream stablecoin mechanisms include:

1. Rebalancing mechanism: Adjust the token supply according to market prices.
2. Restrict circulation: Limit buying and selling during price fluctuations.
3. Minting mechanism: Achieving price stability through the interaction between stablecoin and volatile coin.
4. Over-collateralization: Use excess assets as collateral to issue stablecoins.

The over-collateralization mechanism is relatively mature and has been adopted by several mainstream projects. However, each mechanism has its own advantages and disadvantages, and further optimization is still needed.

Analysis of Major Decentralization Stablecoin Projects

DAI

• The largest market cap decentralized stablecoin
• Adopt an over-collateralization mechanism
• Centralization risk exists: Collateral includes real-world assets
• Facing profit pressure, actively expanding application scenarios.

FRAX

• Adopt a mechanism of partial algorithm and partial collateral
• The collateral is mainly USDC, with a higher risk of centralization.
• Actively establish liquidity and application ecosystem

Liquity (LUSD)

• Fully Decentralization, using only ETH as collateral
• Use automatic liquidation pools to reduce risk
• Smaller scale, insufficient liquidity
• Innovative design of additional demand mechanism

RAI

• Use a custom index as a price anchor
• Completely get rid of the US dollar and achieve true Decentralization.
• High consensus costs, insufficient scale effects
• The mechanism design is relatively aggressive.

Challenges of Decentralized Stablecoins

1. The scale effect is insufficient, making it difficult to compete with centralized stablecoins.
2. Price stability is relatively poor
3. Low capital efficiency
4. Insufficient liquidity
5. Limited application scenarios

Future Outlook

Despite facing numerous challenges, decentralized stablecoins still have room for development.

1. Centralization risks are becoming increasingly prominent, which may drive the demand for Decentralization.
2. New mechanisms are constantly emerging.
3. The DeFi application scenarios are gradually enriching.
4. Large DeFi projects start to layout, such as Curve, Aave, etc.

In the future, projects that can balance decentralization, stability, and capital efficiency are more likely to succeed. At the same time, deep integration with the DeFi ecosystem is also key. There are still opportunities in the decentralized stablecoin sector, but more innovation is needed to address the challenges.