I would like to start a discussion on this topic as I believe it will have significant impact on the liquidity of Algorand eco-system and Algofi in particular.
At present, there are very limited stablecoins within Algorand.
USDC is apparently the most dominant one (and rightly so). Having said that, there’s a centralized issue w.r.t USDC and it is not healthy for Algorand to mainly and mostly rely on it.
Within Algofi, we have STBL2. Apparently it’s our own interest to heavily use and promote STBL2. Having said that, STBL2 is still an algorithmic stablecoin, and as much “safe” and “over-collateralized” as it is, there’s a regulatory issue w.r.t. STBL2. We haven’t known yet how algorithmic stablecoin such as STBL2 will be regulated or even allowed within some territories (as there’s discussion about banning them or their usage in the US or EU). As a result, it might not be wise to rely heavily on STBL2 (beside USDC).
So what is left in terms of stablecoins? Apparently it is USDT. So far, it is still the most used centralized-stablecoin in crypto space. There was a credibility issue w.r.t. USDT. However, it has been improved significantly over the last 2 years. We all should also be aware of the fact that, USDT has also been traded at higher value than USDC over the last few months. It means that the market highly appreciate and trust USDT even more than USDC, at least for now and in the near future.
As a result, I believe that it serves our best interest to add Collateral factor to USDT (80% as USDC or at least 75% as STBL2). Doing so will attract significant interest in USDT depositors and borrowers, hence increases Algofi usage and revenue. As Algorand eco-system and its TVL has been improving significantly over the last few months (we are currently at #15 in terms of TVL in Defillama), a significant amount of USDT available across other networks might sooner rather than later find it way to Algorand. We simply can’t miss this great opportunity to take the lion share and promote the Algofi platform to new defi users.
I’ll very appreciate if you can share your thoughts on this important topic. And I really hope that we can make a proposal and vote for it.
USDT systematically failed to provide independent audit of their funds while they’re leaders are facing legal issues in several countries. I don’t see how anything improved. Adding bad collateral is extremely dangerous for the protocol and I prefer being safe than sorry
STBL2 is not an algorithmic stablecoin tho, its an overcollateralized stablecoin
i dont think there is enough interest in USDT in the ecosystem and without a finished audit in my opinion we def shouldnt change the collateral factor
and i dont get your reasoning honestly of why we need another (non Algorand native) stablecoin in the ecosystem? we have problems with deep liquidity with USDC already, promoting USDT doesnt seem right
STBL2 is an overcollateralized stablecoin. It is always backed by more than 1 USD in assets. I think the original Algofi documentation may have identified STBL as an algorithmic stablecoin. I believe that this is a misnomer because it’s nothing like UST. Personally I don’t think we should increase the collateral factor until a full audit is produced. Not trying to FUD but there’s a reason why Tether had to settle with the NY. I’d hate to lose my lent assets because USDT lost its peg.
You want to increase the exposure of the protocol by increasing the collateral factor of an an opaque “stablecoin” into a transparent system? Pray tell, how does that sound like a good idea to you?
Dear @jaclarke. Thanks for the follow up.
I think for whatever we are building or want to build (to grow the Algofi platform & Algorand eco-system as a whole), we need to think more about the future rather than the present.
If we believe in a future where Algorand will dominate the defi landscape, and Algofi continues its dominance in this eco-system (which I strongly believe is the case), then supporting and attracting new USDT depositors and borrowers is just a no-brainer decision.
I have no ideas why people in Algorand seems to be so suspicious about USDT.
It has been the #1 centralized stablecoin for several years in terms of marketcap.
It’s the most battle-tested stablecoin out there. Despite so many hates and disinformation campaigns of short sellers, especially during the UST carnage with billions redeemed from Tether’s treasury, USDT is still there, stronger & more popular than ever, and currently traded higher than USDC.
Last but not least, it is USDT not USDC the most popular trading pair across any major centralized exchanges. So whenever a centralized exchange (such as Coinbase, Binance, etc.) supports Algorand stablecoins, USDT would be the first to be considered, not the other way around. As an example, one can imagine that it makes much more senses to borrow directly USDT from Algofi, send it to Binance, and purchase ALGO or whatever coins/tokens he/she wants. With USDC, that person would have to convert it to USDT before trading (which will cost him/her trading and exchange fees).
It’s worth mentioning that Binance, the #1 centralized exchange, has removed all of its USDC trading pairs (to promote their own stablecoin BUSD but also to remove the low liquidity issues of those USDC pairs).
I think I should also touch on Folk Finance as you mentioned it. A “novice” defi user will find Folk Finance a very confusing and difficult-to-use platform. I’ve been in this space for a while and still find difficult to explain it to people in my circle who are inexperienced with all of those by-product tokens. It’s worth mentioning that every “swap” to get those by-product tokens is likely subject to income tax in several territories. That’s why FF hasn’t got many depositors. So it’s actually not a problem of USDT itself but FF’s core issues afterall.
With all due respects, I don’t think it’s right to give a collateral factor of 80% to USDC while its USDT counterpart is 0%. As a leading defi platform, it’s just doesn’t make any senses not try to capture that huge amount of capital in USDT out there. You have first mover advantage and you don’t want to leave such a big hole in the market for your current & future competitors to take the lead.
On a side note, I should make it very clear that my proposal by all means is not to demote STBL2 as some might have suggested in their replies. A decentralized stablecoin is the holy grail of any defi-oriented eco-systems such as Algorand. Having said that, STBL2 is a very litte pretty baby that’ll need a village, with time & patience, to look after and grow. And it doesn’t really matter how we explain it or how hard we promote the highly-overcollateral feature of STBL2, it is still an algorithmic stablecoin subject to heavy-regulation in the very near future. We simply can’t ignore that fact and assume that everything will be perfectly fine with STBL2.
This is widespread in DeFi across most blockchains. While it’s clear USDT has deeper liquidity in CEXs, it seems to be the opposite in DeFi, just have a look at the top protocols in EVM chains, Solana, etc. USDC has +3x more TVL than USDT (the exception here is BSC).
Hi @JumperAvocado.
You actually pointed out a cause-and-effect issue w.r.t. the low liquidity of USDT in DEX vs. CEX. And this has nothing to do with reliability of USDT.
Since usdt pairs are significantly dominant in CEXs (in comparison to USDC, BUSD, etc.), it’s natural that you see a majority of USDT capical is deployed in those CEXs. As a result, a smaller portion of USDT is in DEXs.
Opposite phenomenon can be observed for USDC.
Hi everyone.
It’s been a while since we last discussed this matter.
Considering what is happening to BUSD, a centralized stablecoin issued by Paxos, I believe it is even more urgent now for us to re-evaluate the risk of Algorand defi in general and Algofi in particular in relying too heavily on USDC, another centralized stablecoin issued by Circle.
I do think that in the short and mid-term, a better support for USDT is critical for the health of our eco-system.
Look forward to your feedback on this matter.
Thank you.
I believe that in the US market, USDC has a positive crypto brand. Therefore, I believe USDC on Algofi is a good approach for growing defi adoption on Algorand. I’m looking forward to veBANK token holders voting on rewards so that we can better understand how the community sees USDT, USDC and STBL2 with BANK distributions.
It will be interesting if USDC gets any real competitors in the US market with BUSD under pressure. Maybe Trust USD will get some additional market share. For now, I’m positive on USDC and intend to allocate/vote veBANK heavily on USDC offerings on Algofi.
I have nearly zero faith in Tether and expect it to collapse. I’m happy to elaborate on that in depth if its desired but I’m not hear to convince you of my position. Regardless of my personal position, we shouldn’t allow any centralized token as collateral that isn’t regulated by a top tier regulator (US, Western Europe, Australia, Singapore, Japan, etc), banking with firms in those jurisdictions, and able to produce a complete audit of their reserves. That is taking on risk that we have no real way of mitigating or anticipating. Tether meets neither of these requirements. Tether is regulated by the same Bahamas regulators who were overseeing FTX. They have also failed to produce a full audit of their reserves while promising to do so since 2015. Even though I’d still be hesitant, if Tether can produce a complete audit from a big 4 auditor and domicile itself somewhere with adequate regulation, I wouldn’t stand in the way of allowing it to be collateral.
@pescennius Thanks for your opinion. I think you’ll find you have some people agree with you on the grounds you’ve cited. @nlh , can you show any circumstances where Circle’s USD reserve for USDC has ever been compromised, questioned, or otherwise not proven/failed an audit? If you answer is no, I hope you can see why there’s some lack of trust in USDT.
I think you are right @pescennius about Tether. I was doing some research about the BUSD situation. It appears that Paxos has a good stable coin business that is based in New York and regulated by New York State. I think it would be good for Algofi to have liquidity from the Paxos Dollar (USDP) and TrueUSD.
@nlh as an addendum to my first post, I would be amenable to allowing USDT if we implemented something like my Insurance Proposal. In that world, we could set the collateral factor based on how much liquidity exists that is willing to bet that USDT will remain backed.
I can appreciate the concern of us relying heavily on USDC. We should have a weighted gauge to diversify our collateral and encourage both USDC and USDT investors. Although STBL2 is not algorithmic, it is a overcollateralized stable coin which depends on the strengths of our diversified collateral.
As previously stated in this thread, the Algofi DAO should consider USDP or TUSD since they are US based organization. In parallel, the DAO should explore on-boarding Euro Coin. Our veBANK will vote for proposals that remove and/or eliminate USDT from the protocol. USDT on the protocol is already down to $661K compared to over $15M of USDC. We are talking about a “stable”, Tether, with low usage on Algofi.
Until their is a Stablecoin issued directly by a US Bank; USDC, USDP and TUSD are the best we are going to get. I standby my support of USDC. At the same time, I challenge the Algorand foundation to on-board USDP and TUSD. I think Algorand Gov Vote 6 should be about using some funds to help on-board more US based stablecoins. USDT is not the answer, IMHO.
I think I simply said the obvious. No financial system is sustainable if it solely or heavily relies on one thing, no matter how good or credible that thing seems to be.
We simply digged one big hole for ourselves and pretend that everything would be perfectly fine.
Have we learned anything from this lesson? It doesn’t seem so.