An article to understand the stablecoin layout of the Solana public chain

According to data from Coingecko, the current total market value of stablecoins has exceeded 100 billion U.S. dollars. According to the market value ranking, the top three stablecoins are USDT (61.884 billion U.S. dollars), USDC (26.634 billion U.S. dollars) and BUSD (11.178 billion U.S. dollars). .

An article to understand the stablecoin layout of the Solana public chain

In the past year, although the market value of stablecoins continues to break new highs with the hot DeFi market, USDT’s share of stablecoins has continued to shrink. Rising stars such as USDC, BUSD, and DAI are gradually breaking the dominance of USDT in the stablecoin market. . What is a stable currency? What types of stablecoins are there? What layout does Solana have in the stablecoin market? In this article, Solana Hub will take you to understand the stablecoin called “Sword of Damocles”.

What is a stable currency?

As the name suggests, stable currency is a kind of cryptocurrency with anchoring properties. Compared with the fierce volatility of cryptocurrency markets such as Bitcoin and Ethereum, stable currency prices are relatively stable and can be used as an intermediary for transactions in the cryptocurrency market.

Classification of stablecoins

There are roughly three types of stablecoins on the market. One is a centralized stable currency. For example, USDT, which is the most common currency in the cryptocurrency market and has the highest proportion in the stable currency market, is a stable currency issued by the centralized organization Tether in 2014 with the US dollar as a 1:1 anchor. . Tether promises that for every 1 USDT issued, the company will increase its asset reserve by 1 USD. However, the market has always had doubts about the authenticity of its asset reserve, and it has repeatedly attracted the attention of regulators. With the increasing circulation of USDT in the trading market, the possibility of USDT thunder has become the “Sword of Damocles” hanging in the crypto market.

The stablecoins issued by centralized institutions are not transparent enough and may be monitored by regulatory agencies at any time. On-chain asset-backed stablecoins have emerged. The most representative one is DAI, whose current market value ranks fourth in the stable currency market. This is a decentralized stable currency that was released by MakerDAO in December 2017 and anchored 1:1 with the U.S. dollar. Users mortgage their own assets on the Ethereum chain in MakerDAO to generate DAI. When the value of the mortgaged assets drops, they need to replenish the mortgaged assets in time, otherwise the system will automatically liquidate to ensure the value of DAI.

However, mortgage-type stablecoins usually need to lock higher assets to be generated, which reduces the efficiency of asset utilization. Without collateral, the birth of algorithmic stablecoins generated through the elastic supply adjustment mechanism seems to be able to solve this problem. Its representative products include Fei, Terra, etc., relying on the dual power of the market and algorithms to ensure that the stable currency in the system is maintained at about $1. Although there are many problems in the operation of algorithmic stablecoins, which have caused many investors to suffer losses, algorithmic stablecoins seem to have become the future development trend of stablecoins due to their advantages of decentralization and high asset utilization.

Solana’s stablecoin layout

Stable currency supports stable holding and payment, and at the same time has the payment speed and censorship resistance of cryptocurrency. After the “DeFi summer” in 2020, the market’s demand for stablecoins has increased sharply, which not only greatly accelerates the issuance of USDT, but also allows more people to see the market potential of stablecoins.

At the beginning, stablecoins were all developed and issued on the Ethereum chain. However, as the transaction speed and transaction fees of the Ethereum chain limited the development of stablecoins, more and more stablecoins are looking for higher performance and better performance. The low-cost public chain, Solana public chain is one of the representatives, and stablecoins have also become an important step for Solana public chain to improve the layout of the DeFi track, providing more possibilities for the combination and innovation of Solana DeFi protocols in the future.

What are the directions for the stablecoins on Solana?

1) Support the issuance of centralized stable coins (USDT, USDC)

Launch USDT on Solana. USDT is currently the largest stablecoin listed on the market and one of the most widely used stablecoins in the DeFi field. USDT is the key infrastructure for all successful blockchain projects, and it has become the most important element of cross-platform settlement. In August 2020, Solana officially announced the integration of Tether into the Solana public chain. On the one hand, this will help the development of the Solana public chain, and on the other hand, it can help USDT holders to perform on the network faster and cheaper. trade.

Ethereum can only complete 15 transactions per second. When it is congested, it costs hundreds of yuan to transfer a USDT transaction fee, and the speed is extremely slow, which greatly affects the user experience. Solana’s throughput can reach 60K/s, and it can support a large number of requests at the same time. There is no need to increase transaction fees to limit user requests. Users can achieve the same transaction experience as Visa on the Solana public chain.

An article to understand the stablecoin layout of the Solana public chain

The actual TPS of the previous Solana host (Source:

In October 2020, Solana officially announced that the Solana blockchain will support USDC stablecoins, becoming the fourth blockchain to support USDC after Ethereum, Algorand and Stellar.

2) Actively cooperate with non-ecological algorithmic stablecoin projects. In April 2020, Solana officially announced its cooperation with Terra, the largest stablecoin project in Asia, to bring Terra’s stablecoin into the Solana ecosystem through token bridging. The features of high performance and low transaction fees can be more conducive to Terra’s application in payment. Terra is an algorithmic stablecoin platform, and platform users realize Terra’s value stability through arbitrage.

Projects in the ecosystem are also actively cooperating with algorithmic stablecoin projects. Solana’s decentralized exchange Saber announced on July 15, 2021 that it will cooperate with the algorithmic stablecoin Frax Finance to launch the FRAX trading pool on Solana.

3) Agreement on stable assets on the ecological internal chain. In May 2021, the Solana ecological project Mercurial Finance described its operation on Twitter. Mercurial Finance provides low slippage stable currency exchange transaction services, while using dynamic charging mechanism and flexible capital allocation to increase the income of liquidity providers. AMM vault provides dynamic fees for native and wrapped stablecoins (USDC, USDT, wUSDC and wUSDT) on Solana, with the goal of helping to improve the liquidity of these assets.

An article to understand the stablecoin layout of the Solana public chain

Parrot, another stablecoin project in the Solana ecosystem, also completed the MVP mainnet launch in June 2021. Parrot is a stablecoin PAI minting platform. Currently, Parrot only supports USDC and USDT deposits, and 100 PAI can be minted by depositing 105 USDC or USDT. In the later period, Parrot will also support the mortgage of SOL, ETH, BTC and other assets to generate stable currency PAI. Minted PAI users can use PAI to exchange for SOL on the Serum platform, or exchange for USDT on the Mercurial platform. In the future, PAI will continue to play more important roles in the Solana DeFi ecosystem.

Concluding remarks

Since the birth of stablecoins, although they have been questioned a lot, they have not stopped their development. From centralization to decentralization, from mortgage generation to algorithmic stablecoins, stablecoins provide us with a beautiful encryption. New world. By using stablecoins, crypto asset investors can stay in the crypto world, gain advantages in flexibility, integration, immutability, and anonymity, and benefit from the stable environment provided by various technologies and methods, and enjoy low-risk operations Experience.

With the gradual expansion of the user base of stablecoins, a secure, stable, and highly scalable underlying network has become a necessity for us to participate in the ecology. Solana opens up the imagination space for the new cycle of DeFi innovation. In addition to high performance and low cost, the Solana ecosystem is also expanding the breadth of DeFi, and high-quality DeFi protocols are constantly emerging. If an ecosystem can accommodate more projects, carry more users, and provide larger composable space, then the network value of the underlying blockchain will definitely be higher.

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