Stablecoin Maximalism: DeFi's Universal Framework

Transcript

foreign how's it going everyone thank you for being here um my name is defy Dave I'm a core advocate for frax just a humble member of the community and I am the co-host and founder of flybo defy today I'm here to talk about stablecoin maximosum it's a concept whether you like it or not it's taking over all of defy now for some context sabercoin maxillism was an idea that was presented into detail earlier this year at East Denver and it states that on a long enough time scale most D5 protocols converge to become a stable coin or have a

stablecoin foundational to their existence at scale these stable coins look universally the same in structure now this does not mean that there will be one stable coin to roll them all it only means that everything will slowly converge to become a stable coin one can see evidence of this with the recent launches of CRV USD from curve and also go from Ave yesterday this logic of slowly converging on a single design does not apply exclusively to stable coins but to all mechanical designs once the ideal form is found to scale everyone in the category follows suit now you can see this play out in the

recent uh you know surge of Twitter competitors the ideal form of a social network on a smartphone is we see kind of this sort of timeline maximalism where on a long enough time scale most social media platforms converge to have a single timeline and at scale these timelines look literally the same in structure you can see whether if a platform was made a few weeks ago like threads or a few decades ago like Twitter they all look and function the same now we don't have to reinvent the wheel to simplify this because we can look at the wheel itself now we have like a cylinder maximalism where on a long enough time scale all

Wheels converge to have a cylinder design and those cylinders will look universally the same in structure there's a reason why you don't see hexagon or octagon Wheels because they lost out in the evolutionary race now before we dive into stable coins let's let's say stablecoin maximalism let's define what a stablecoin is a sable coin is a token that is picked to a reference price and there's a commitment to keep it at that price by means of liquidity incentives Etc the most popular stable coins are dollar Peg stable coins like usdc fracs and more but others exist including europex stable coins commodity to pay like stable coins and more now we see a stablecoin social contract

exists that between that happens to be between sabercoin holders and sabacoin issuers sabercoin holders give up the opportunity for risk-free yield in order to have a safe haven from volatility on chain issuers receive the ability to acquire risk-free yield with the underlying asset but in return they must be able to fully redeem him hold um holders hole then this is the implicit agreement between the two otherwise if they can't be redeemed it falls apart so now in this social contract we see the two pillars of stablecoin maximalism we see the risk-free yield and we see

the swap facility the risk-free yield is the interest earned on high quality Reserve assets so for the dollar the risk-free yield is the Fed master account reverse repo agreements or treasuries for eth the risk free yield is staking on the beacon chain it is important to note that nothing is ever risk-free but these reserved assets are the safest available options for issuers the swap facility is the venue where stable coins are minted and Redeemed by holders for a dollar Cloud advice stable coins like uscc it's cash for each collateralized stable coins like steth it's the Redemption contract their confidence in this facility is vital to the health of a stablecoin

otherwise a deterioration and confidence may lead to a classic Bank Run now we can measure how successful a stablecoin's organic adoption is through its monetary premium it has occurred monetary premium indicates a stablecoin's network effect by measuring how much natural demand there is for a stablecoin without the expectation of yield or other Rewards the more a stablecoin is being used for its inherent usefulness is money the more monetary premium it commands establishing monetary premium it doesn't happen overnight it only happens through years of building trust in Lindy it is the only objective kpi That Matters to measure the success of a

stablecoin now with this framework in mind what does stablecoin maximalism look like in the wild today the most profitable company in all of crypto is not coinbase it's not binance but in fact it's tether in May of 2023 tether revealed that it brought in 1.48 billion dollars in profit in q1 of 2023. it's a new record for them tethers treasury direct Holdings reached an all-time high of over 53 billion dollars now to put that into perspective if you were to rank all the world's countries in order of how many treasuries they own tether would rank just below Mexico

it's pretty big and with 83 billion dollars in circulation and number one the save coin rankings tethers dominance does not look to slow down anytime soon now although it's only long although it's been in existence for only nine months facts eth has catapulted to near the top of the LSD rankings with over 235 000 each state this impressive feat is due to fraxied's novel 2 token design that takes into account sabercoin maximalism there's fraxied which is the vanilla eat Peg stablecoin that's basically the equivalent to weth and then there's sfax Heath where you can stake your flaxseed for risk-free yield on the beacon chain and the proof is in

the pudding per a thousand each staked abstract teeth has earned 45 percent more than wreath and nearly 30 percent more than teeth since launch now frax views curve the curved stable swap amm as its mincing redeeming facility but for those who you know want to wait they will be coming out to a one-to-one contract pretty soon now in this model you can actually measure how much monetary premium that fraxi eat has occurred over time and as you can see on the chart everything that isn't in the sfax seats Vault or that's not in the curve pool is uh floating around in The Ether no pun intended and right now it's around 12 percent

foreign taking notes predicted at East Denver back in March last month karpicky published a proposal to put all the dye on the xdi bridge into maker Dow's die savings rate or DSR now the DSR is the risk-free rate of the maker protocol and ever since it was increased to 3.59 earlier this year it has become an attractive option for onshine natives in fact it has been speculated that nearly 7 million die was withdrawn from the exide bridge for this very reason now strongly influenced by fraxied's model The Proposal adds a new dimension to xdi making it a two token system you

know you have you can put the X die into SX die and earn a boosted yield because that all xdi is being used in the vault and this is just like fraxieth now we see the flip side of a stable going issuer gone wrong with the multi-chain bridge debacle for example all die that was issued on Fancy by multichain may have been branded as die but in fact was the liability of multi-chain it was die in name only when the liability could no longer be redeemed because of the bridge being hacked it became insolvent now at the end of the day with sabalcoin

maximum shows is the on-chain version of fractional Reserve Banking and by show we really mean it because of the innate transparency of blockchain we're able to monitor the solvency of protocols much more effectively compared to our offshine counterparts frax has been leading their way in this regard for the first time ever you can audit the balance sheet on a block by block basis and see exactly the protocols assets and liabilities this unparalleled openness is revolutionary for not only D5 standards but traditional Finance standards as well you can literally just go to facts.frax study Finance go to the frax tab and you can see the balance sheet it's pretty cool

so now what can we conclude stablecoin maximalism provides the playbook for D5 protocols who want to scale by identifying the risk-free rate of the underlying asset and creating a liquid swaps facility for it these C5 protocols could increase their growth efficiency and profitability by Leaps and Bounds and have an advantage over those who don't thank you for watching uh means a lot y'all here I've been going to ECC for the past three years of first time speaking here so it's pretty cool thank you uh you can follow me here yeah because you can reach out to facts there fly well there I'm over here I'm open to

questions um yeah take the floor so that's why before you had a slide talking about measuring the money the network effects yeah I think yeah can you explain a little bit more about how you measure that so think of it like this a lot of times people are using stable coins with some expectation of yield or rewards we saw this during D5 summer when you saw all these different games pools who this and that on what a math model um there isn't a specific math model but with frax and fraxied specifically they measure it out by pretty simple they subtract the total amount of flaxseed by the amount of seed that's in sfax teeth

and the amount of flaxseed that's in the curve for which in my opinion is the swap facility for it so all the other fraxi thin existence because it's not earning yield in the sfx heath Volt or and not earning yield in the curve pool you know I consider that it's monetary premium increasing yeah to calculate sorry yeah to calculate Network effects you want to balance that with some something that is comparable so you want to compare with all the other all the other alternative assets out there substitution assets and a math model that is equally valid for measuring all the substitution assets will make sense to have a comparison yeah I think I would definitely be open

for a math model being created right now you know this idea is very new so math models have been created but if you just see tether out there with 83 billion dollars in existence people using it you know for their salaries for their day-to-day you know for remittances and everything like it has achieved massive monetary premium but it has been measured yet so I encourage people that want to measure it you know to go ahead any other questions don't be shy if you ask a question I'll give you merch there's the hint yeah this is more so just like a personal question but like what is it about

fracks that Drew you in uh as opposed to other stable coins that's a great question I think you know I've been there like around the development since the very beginning and I've just seen the work work ethic of the team um and how they've been able to adapt and evolve the protocol and frax's protocol today is a lot different than what originally came out and they're the team's ability to you know react to changes in the market to listen to the community which is very intelligent very nuanced along the way I think it makes a huge difference and to um yeah I'm just a big fan awesome I'm just a humble member of the community like I said

if no other hoping you would share more about like what's happening overall in frax because this just constant shipping that you guys are doing and it's very much unlike other other protocols and what they're doing yeah touch on that a bit yeah I like to call it frax the CL Team Six of crypto devs and so you just eight of them just like locked in their rooms just constantly shipping um the things that are coming out the most um the thing that's coming out soonest is fraxcov and that will finally decentralize governance bring final say to token holders uh after that in the pipeline you have frax Heath V2 which is creating a lending market for validators

I had a whole episode with Sam covering that we have the BAM the borrow amm coming out which is quite similar to Curves llama InDesign so you'll be able to have long tail assets that you can lend on and borrow on prax lend and of course layout in the future you have a fraction so a lot of things in the pipeline but the three immediate things are fraxcov fraxi V2 and Bam how is it possible that you guys are doing like so many different like touching on so many different parts of Define and what's the purpose like well everything that frax builds has a purpose of proliferating all of frax's stable coins so for Access three stable coins frax fpi and frax Heath and it has sub protocols to support them everything

that frax builds is from the ground up they are in forks and everything has a specific purpose for increasing the market share of all the different products and that frax views like you know all these different sub protocols and it's funny I have it on the back of my shirt this uh D5 Trinity of of sorts you have the stablecoin you have the lending Market in an amm people view them as different but they're all parts of the same thing you know they're all extensions of the sabercoin and you see this you know with go coming out with Ave on the lending Market CRV USC coming out with curve which is an amm um so if no more questions thank you very much friends one more one more

okay you said that uh stable coins converge to one well everything converges to one solution um where do you see stable coins going from here what's what's something that you think should be happening in the future unstable coins by the way I love the pants Americans oh thank you yeah um where I see stable coins going um I think for dollar package disabled coins we see like the ideal design like we see the risk-free rate of it being bonds and treasuries I mean yeah treasuries and so I would like to see a stable coin that's kind of like a step more decentralized than usdc and tether but you know still is able to access that like risk-free rate so I imagine

like there'd be a stable coin with like you know a wrap with like you know a uscc or like a rapper or like you know the collateral stable coin and then you have like a decentralized stable coin on top of that that's able to get that risk-free rate if that makes sense that's actually like how frax V3 is going to be built anything else I'll be here all night so thank you so very much friends foreign [Applause] [Music]