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Recently, the USDH issuance rights bidding war initiated by HyperLiquid once attracted players such as Circle, Paxos, Frax Finance, etc. to openly fight. Some giants even took out $20 million in ecological incentives as bargaining chips. This storm not only demonstrated the huge temptation of the DeFi protocol native stablecoins, but also gave us a glimpse of the stablecoin logic of the DeFi world.
Taking this opportunity, we also hope to re-examine:What is a DeFi protocol stablecoin and why is it so valued?And today, when the issuance mechanism is becoming increasingly mature, where is the real fulcrum that determines its success or failure?
Source: Paxos
Why are DeFi stablecoins popular?
Before exploring this issue, we must face the fact that the stablecoin market is still dominated by stablecoins issued by centralized institutions (such as USDT and USDC).With their strong compliance, liquidity and first-mover advantages, they have become the most important bridge between the crypto world and the real world.
But at the same time, a force that pursues purer decentralization, censorship resistance and transparency has always been driving the development of DeFi native stablecoins, and for a decentralized protocol with daily transaction volumes of billions of dollars, the value of native stablecoins is self-evident.
It’s not onlyIt is the core pricing and settlement unit within the platform, which can greatly reduce the dependence on external stablecoins, and can also lock the value of transactions, lending, clearing and other links in its own ecosystem.Taking USDH to HyperLiquid as an example, its positioning is not simply to copy USDT, but to become the “heart” of the protocol – operating as margin, valuation unit, and liquidity center.
This means that whoever can hold the issuance rights of USDH will occupy a crucial strategic high ground in HyperLiquid’s future landscape. This is the fundamental reason why HyperLiquid responded quickly after the olive branch was put out. Even Paxos and PayPal did not hesitate to take out $20 million in ecological incentives as bargaining chips.
In other words, for the DeFi protocol that relies heavily on liquidity, stablecoins are not just a “tool”, but a “fulcrum” of on-chain economic activities covering transactions and value cycles. Whether it is DEX, Lending, derivatives protocols, or on-chain payment applications, stablecoins play the core role of the dollar settlement layer.
Source: imToken Web (web.token.im) DeFi protocol stablecoin
From the perspective of imToken, stablecoins are no longer a tool that can be summarized by a single narrative, but a multi-dimensional “asset aggregate” – different users and different needs will correspond to different stablecoin choices (Extended reading: “Stablecoin World View: How to build a stablecoin classification framework from the user’s perspective?”).
In this category, “DeFi protocol stablecoins” (DAI, GHO, crvUSD, FRAX, etc.) are one of the independent categories. Compared with centralized stablecoins, they emphasize more decentralized attributes and protocol autonomy – based on the mechanism design and collateral assets of the protocol itself, trying to get rid of their dependence on a single institution.This is also why even though the market fluctuates repeatedly, there are still a large number of agreements that continue to try.
“Paragraph Battle” started from DAI
The evolution of the DeFi protocol native stablecoin is essentially a paradigm battle around scenarios, mechanisms and efficiency.
1.MakerDAO (Sky) DAI (USDS)
As the originator of decentralized stablecoins, DAI launched by MakerDAO has pioneered the paradigm of over-collateralized minting, allowing users to deposit collateral such as ETH into the vault to mint DAI, and has withstood the test of many market extremes.
But what is less well known is that DAI is also the first DeFi protocol stablecoin to embrace RWA (real-world assets). As early as 2022, MakerDAO began to try to enable asset promoters to convert real-world assets into tokens for loan financing, trying to find larger asset support and demand scenarios for DAI.
After the latest rename from MakerDAO to Sky and launching USDS as part of the end-game plan, MakerDAO’s plan is to attract different user groups from DAI based on the new stablecoin, further expanding the adoption of the scenarios from DeFi to off-chain.
2. Aave’s GHO
Interestingly, Aave, which uses lending as the base, is moving closer to MakerDAO and launching a decentralized, collateral-backed, DeFi native stablecoin GHO, which is pegged to the US dollar.
It has a similar logic to DAI – it is an over-collateralized stablecoin minted using aTokens as collateral. Users can use assets in Aave V3 as collateral to perform over-collateralized minting.The only difference is that since all collateral is productive capital, a certain amount of interest (aTokens) will be generated, which depends on the lending needs.
Source: Dune
From the perspective of experimental control,MakerDAO relies on coin rights to expand ecosystem, while Aave has derived stablecoins in its mature lending scenarios. These two provide a template for the development of DeFi protocol stablecoins under different paths.
As of the time of publication, the GHO casting volume exceeded 350 million pieces, which has basically been in a stable growth trend in the past two years, and market recognition and user acceptance have steadily increased.
3.Curve’s crvUSD
Since its launch in 2023, crvUSD has successively supported a variety of mainstream assets including sfrxETH, wstETH, WBTC, WETH and ETH as collateral, and covers the main LSD (current collateral assets) categories.Its unique LLAMMA clearing mechanism also makes it easier for users to understand and use.
As of the time of publication, the number of crvUSD mintings exceeded 230 million. It is worth mentioning that wstETH alone accounts for about half of the total crvUSD mintings, highlighting its deep binding and market advantages in the LSDfi field.
4.Frax Finance’s frxUSD
The story of Frax Finance is the most dramatic. In the 2022 stable crisis, Frax quickly adjusted its strategy and stabilized its position by increasing its full reserves to completely transform into a fully collateral stablecoin.
A more critical step is that it has accurately entered the LSD track in the past two years, using its ecological product frxETH and the governance resources accumulated in its hands to create attractive yields on platforms such as Curve, and successfully achieved the second growth curve.
In the latest USDH bidding competition, Frax even proposed a “community priority” proposal and plans to link USDH to frxUSD 1:1. frxUSD is supported by BlackRock’s earnings BUIDL on-chain Treasury bond fund. “100% of the underlying Treasury bond income will be directly distributed to Hyperliquid users through on-chain programmatic methods, and Frax does not charge any fees.”
From “issuance” to “transaction”, what is the fulcrum?
From the above cases, we can see that to a certain extent, stablecoins are the only way for DeFi protocols to move from “tools” to “systems”.
In fact, as a forgotten narrative after midsummer from 2020 to 2021, DeFi protocol stablecoins have always been in an evolutionary path. From MakerDAO, Aave, Curve to today’s HyperLiquid, we find that the focus of this war has quietly changed.
The key is not the issuance ability, but the transaction and application scenarios.To put it bluntly, whether it is over-collateralization or full reserves, issuing a stablecoin pegged to the US dollar is no longer a problem. The real key is “What can it be used for? Who will use it? Where can it be circulated?”
As HyperLiquid emphasized when bidding for USDH issuance rights – with the priority and compliance of serving the HyperLiquid ecosystem, this is the true fulcrum of DeFi stablecoins:
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First of all, it is naturally an endogenous scenario where this stablecoin can be widely implemented. This is also the “base” of stablecoins, such as-For Aave, it is a borrowing; for Curve, it is a transaction; for HyperLiquid, it will be a derivative transaction (margin assets),It can be said that a powerful endogenous scenario can provide the most primitive and faithful needs for stablecoins;
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The second is the depth of liquidity. After all, the lifeline of a stablecoin lies in its trading pairs with other mainstream assets (such as ETH, WBTC) and other stablecoins (such as USDC, USDT), and ownOne or more deep liquidity pools are the basis for keeping prices stable and meeting the needs of large-scale transactions, which is why Curve is still a must-fight place for all stablecoins today;
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Then there is composability and scalability, whether a stablecoin can be easily integrated by other DeFi protocols, as the underlying asset of collateral, lending assets or income aggregators, determines the ceiling of its value network;
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Finally, it is the “icing on the cake” profit-driven – in the DeFi market where stock games are played, yield is the most effective means to attract liquidity, and stablecoins that “make money for users” are more attractive;
In a nutshell, centralized stablecoins are still the underlying liquidity of DeFi. For all DeFi protocols, issuing native stablecoins is no longer a simple technical selection, but a strategic layout related to the closed loop of ecological value. Its true fulcrum has long shifted from “how to issue” to “how to make it traded and used at high frequency.”
This is also destined to be the futureThe DeFi stablecoins that can win must be “super assets” that can provide their holders with the most solid application scenarios, the deepest liquidity and the most sustainable returns, not just a “currency”.
