Original Author: Ans, Krypital Group
Original editor: Krypital Group
We all know that every hard fork is a community consensus vote. The chain with the most consensus can establish orthodoxy. The same is true for this ETH 2.0 merger hard fork, Vitalik Buterin said: "At the moment of merger, there will be two independent networks... Then the exchange, the oracle provider, the stable currency provider, they are to some extent It decides which network to maintain.” The “stable currency” is undoubtedly the largest application of this. The users and market value bundled by USDC and USDT have deeply penetrated into the tvl of major defi protocols, and have become an inseparable infrastructure for users. strong influence. So this fork community is paying close attention to the attitudes of these two companies. In the end, USDT and USDC announced that they chose to support the direction of the ETH Foundation. This hard fork will only support the pos chain, not the pow chain.
After the hard fork ended, Vitalik Buterin also raised concerns: "In the next five to ten years, Ethereum may usher in more contentious hard forks. I think that in the farther future, this will definitely becomes an even more worrisome issue. Basically, the fact that USDC decides which chain to consider Ethereum could be an important determinant of future contentious hard forks... by then, perhaps the Ethereum Foundation ( influence) will be weaker.”
The exchange giant Binance seems to have begun to realize this problem. Shortly after the fork ended, Binance announced that users' existing USDC, USDP, TUSD stablecoin balances and new recharges will be automatically converted to BUSD at a ratio of 1:1. There is no doubt that this move is expanding the influence of its own stable currency business.
At this stage, the amount of assets carried on centralized stablecoins far exceeds our assets on decentralized stablecoins. Some time ago, the centralized stablecoin husd was officially unanchored. It also confirms the concerns that our industry has had over the past few years, even centralized stablecoins have the risk of unanchoring. Centralized stablecoins have been and will be a topic we cannot live without for a long time to come. As an important Cefi infrastructure that we often use, many people do not understand its specific mode of operation. Every time I face rumors of a stablecoin run, I don’t know where to check the reserve situation.
So, how to measure which stablecoin is more suitable for carrying our assets? In this article, we will compare the operating mechanisms of major centralized stablecoins in detail, analyze the distribution of their reserves, understand the profit model of the companies behind them, and discuss the possible changes in the centralized stablecoin market structure and its potential impact on the public chain in the future . Hope this article can help you gain a clearer understanding of stablecoins.
USDT - Tether Limited
Let’s first take a look at the USDT we are most familiar with. USDT is issued by Tether Limited, a company registered in Hong Kong, and Tether Limited is owned by shareholders of Bitfinex . Because of the first-mover advantage. The current circulation of USDT is about 680 trillion U.S. dollars, which is higher than the sum of the second place USDC and the third place BUSD. It is currently the most liquid stable currency.
Tether's income source 1: fiat currency deposit and withdrawal
The stablecoin issuance process includes four steps: generation, issuance, acceptance, and destruction. If institutions or individual users need to deposit and withdraw funds on Tether's official website. There is a flat fee of $150 for new account verification. After the verification is successful, you can deposit legal currency. The minimum deposit on the official website is 100,000 US dollars each time, and a 0.1% handling fee is required for depositing and withdrawing legal currency, which is also one of Tether's important sources of income. After receiving the user's funds, Tether will generate USDT and officially issue it to the user (that is, officially enter the chain circulation), and the user does not need to charge for withdrawing USDT. On the contrary, if users need to withdraw cash, they can deposit USDT into Tether to withdraw US dollars, and the minimum withdrawal limit is also 100,000 USDT.
Tether's Income Stream 2: Reserve Portfolio
The legal currency deposited by the user becomes part of the Tether reserve. So how will this part of the money be stored by Tether? Tether's reserve fund audit report is released quarterly. In this article, we use the latest two audit reports to compare Tether's reserve fund management.
First of all, this audit report on June 30, 2022 comes from the fifth largest accounting firm in the world, BDO. The report shows that Tether has $66.4 billion in reserves and total liabilities of approximately $66.2 billion, with consolidated assets exceeding its liabilities. And 79.62% of the reserve funds will be exchanged for "cash and cash equivalents, short-term deposits and commercial paper".
https://tether.to/en/transparency/#reports
This 79.62% can be subdivided into the following subcategories:
10.25 % cash and bank deposits;
0.75 % for non-U.S. Treasury bonds;
54.57 % U.S. Treasury bills;
12.88 % money market funds;
15.89 % Commercial paper and certificates of deposit
We can see that 10.25% of this part is cash in the bank at any time, deposited in Tether's partner in the Bahamas, Deltec Bank . (the bank is not regulated by sec and fed)
Treasury bonds and monetary funds are also safe and liquid assets. But what deserves our attention is the 15.89% commercial paper part. This part of the fund was once rumored to have bought a large amount of Evergrande commercial paper, which once caused fluctuations in the USDT and encryption markets.
Regarding this rumor, Tether made a statement in its announcement on September 6. Said that currently does not hold commercial paper of Chinese enterprises. And they have been gradually reducing their total commercial paper exposure over the past few years, and are expected to exit all commercial paper investments by October 2022.
Tether announcement link: https://tether.to/en/how-tether-keeps-the-us-dollar-strong
In addition to the above, the rest of the money
5.25% will be purchased into corporate bonds, funds and precious metals;
6.77 % for secured loans
This part is worth mentioning that in October 2021, Celsius Network CEO Alex Mashinsky said that Celsius borrowed billions of dollars by mortgaging BTC to Tether. Pay 5% to 6% interest per annum. When Celsius fell into a liquidity crisis in June 2022, Tether announced that it had liquidated its pledged BTC, and this part of the funds was not affected.
The final 8.36 % of the reserve is in " other investments"
This part of the official statement clearly includes digital tokens . Tether's general counsel, Stuart Hoegner, also mentioned in an interview that Tether's reserves contain some BTC, and emphasized that it is a "small amount". However, a more detailed allocation description of this part of the funds has not been disclosed at present.
Reserve position adjustment
Tether released the latest audit report on September 30, 2022. The new report shows that the "other investment" part has been reduced from 8.36% to 3.85%, but this part of the funds is still not explained in more detail, and they will The risk exposure of "commercial paper" has been further reduced to 0.07%, and it is expected to withdraw all commercial paper in October, further increasing the position of US debt. If it achieves its goals, we should see the position in this part of the reserve completely cleared in the report at the end of December. Therefore, the composition of usdt's reserves is not static. In fact, Tether has been constantly adjusting its composition in recent years, and there will be companies with different audits. The community is also called upon to maintain continuous attention to the subsequent audit reports of major stablecoins.
So what is the conclusion, will Tether have acceptance risk?
Every audit report of Tether shows that the comprehensive assets exceed its liabilities, and most of the accounts are liquid and low-risk assets, which proves the value of USDT. They have listened to the opinions of users and are gradually withdrawing. The much-questioned commercial paper investment strategy. So at present, they have a strong ability to accept, but compared with the stablecoin companies mentioned below, there are still some opacities, such as the "other investment" part mentioned above. And the update frequency of the quarterly audit report is much lower than that of the other two stablecoins. It is hoped that they will issue more detailed and timely reserve reports in the future.
Tether's announcement on canceling commercial paper investment positions: https://tether.to/en/tether-proves-resilience-of-reserves-in-latest-attestation
USDC - Circle
USDC is currently the second largest stable currency. It originated from the Center project jointly established by Circle and Coinbase in 2018, and Circle is currently the only USDC issuer of the alliance. Circle is headquartered in Boston. After completing a new round of financing of US$400 million in February this year, it is already a unicorn with a valuation of US$9 billion. It originally planned to merge through SPAC (special purpose acquisition company) before April 3, 2022. Concord Acquisition Corp is listed, and the final announcement is that due to various uncontrollable factors, the transaction will be postponed to December 8, 2022, and further adjustments may be made according to the situation.
Reserve situation
USDC's reserve funds are only held in the form of cash and 3-month U.S. Treasury bonds. The cash is mainly hosted by BNY Mellon. The audit report is updated every month and is provided by Grant Thornton, the world's leading accounting firm. The audit attests, and starting this July, each report will include detailed bond maturities and market values as well as a weighted average maturity for the entire bond. Because the reserve uses the lowest-risk treasury bond portfolio and has a relatively detailed reserve audit report, this is also an important reason for its high praise.
Multi-service development
In the case of this portfolio, the interest income of the reserves is far less than that of Tether, but Circle has multiple business lines. According to the investor report released by Circle, it currently has 3 major business lines.
Investor Presentation: https://www.circle.com/hubfs/investors/Circle-Investor-Presentation-July 2021.pdf
1. Interest income from USDC reserves;
2. Transaction and Financial Services (TTS);
The full name of TTS is Transaction & Treasury Services. This part of the business mainly provides asset custody services, paid API development components, payment and collection solutions, anti-money laundering solutions, etc. for enterprises. Existing clients include Dapper Labs, Compound Labs and FTX, among others.
1. SeedInvest, an equity crowdfunding platform;
SeedInvest, an online equity crowdfunding platform acquired by Circle in 2019, helps startups raise funds online in a compliant manner, where investors can browse companies and invest in them.
Actively explore new products
In addition to the above-mentioned several product lines, in the face of pressure from competitors such as BUSD, Circle is constantly trying new directions to empower its own products. In September of this year, Circle announced the development of an official USDC cross-chain transfer protocol. To improve the interoperability of USDC.
According to the current official introduction, the agreement does not require a license, enabling USDC to be sent across chains and circulated on various chains more conveniently, thereby improving liquidity and reducing the fragmentation of bridging assets. Developers of wallet construction, cross-chain bridges, payment applications, financial services tools, etc. will be able to provide simple cross-chain USDC transactions. This cross-chain transmission protocol developed by the stablecoin service provider is undoubtedly more secure, can improve the liquidity between different chains, and bring users a more convenient experience.
Conclusion: Compared with USDT, USDC undoubtedly has higher transparency and liquidity in reserve allocation. This is why it is favored by American institutions, but if there is anything worth picking from a tricky point of view, it is that USDC has only used the same auditing agency grant-thornton from 2018 to now . Don't trust just one rating agency is one of the most important lessons of the subprime mortgage crisis.
In addition, BUSD may affect its market share to a certain extent. However, because Binance owns the BSC chain, it is difficult to affect the status of USDC in other public chain communities. Circle is also combining its own advantages and constantly expanding other business lines to meet the needs of users. It is expected that its new products will bring more empowerment to the industry.
BUSD - Binance&Paxos
BUSD is issued by Binance partner Paxos . Thanks to the support of Binance resources, its circulation has rapidly grown to 20 billion U.S. dollars in just a few years, making it the third largest stablecoin in the world.
Reserve details
BUSD is issued under the regulatory approval of the New York State Department of Financial Services (NYDFS), a mainstream regulatory body in the blockchain industry. It is audited by the American audit company Withum, and an audit report is issued every month.
https://www.binance.com/zh-CN/BUSD
The latest report shows that 54.08% of the BUSD reserves are placed in short-term US treasury bonds, 42.94% are placed in the Fed's overnight reverse repurchase agreement, and the remaining 2.98% are deposited in cash in banks covered by the US FDIC insurance.
Advantages of BUSD
1. In addition to being regulated by NYDFS, BUSD is also subject to the New York Banking Law. Under this legal structure, BUSD has set up a completely isolated bankruptcy remote account. Under this structure, customer assets are separated from Paxos’s own funds. If Paxos goes bankrupt one day, the reserves will not enter the standard bankruptcy process. NYDFS regulators will return the assets held in the Paxos trust to the legal BUSD owners. Although the probability of bankruptcy of a stablecoin company seems to be very small, the asset isolation structure will undoubtedly further prevent the impact of future black swan events and protect the safety of user funds.
Note: Paxos’ BUSD is not equivalent to Binance’s Binance-Peg BUSD Token. There is also a clear difference between the two in bscscan, indicating that Paxos’ BUSD is only issued on Ethereum, and only this part is regulated and protected by NYDFS. The BUSD on BNB Chain, Avalanche, Polygon and other chains is the token after Binance is linked to the token service, that is, for example, the BUSD on the bSC chain belongs to the Binance-Peg issued by Binance 1:1 after locking the corresponding Ethereum chain BUSD BUSD Token.
https://bscscan.com/token/ 0 xe 9 e 7 cea 3 dedca 5984780 bafc 599 bd 69 add 087 d 56
Some readers may wonder, since Binance has locked the corresponding Ethereum BUSD, why do we need to distinguish between the two, because after Binance announced that the ratio of USDC, USDP, and USDC of users on the platform will be automatically converted to BUSD at a ratio of 1:1 There will be executable issues . USDP is another stable currency issued by Paxos, while Tusd is issued by another stable currency issuer, TrustToken, Inc.
If the stablecoins of these two companies are recharged to Binance, they will be treated as BUSD, and the reserves of USDC and TUSD are not in the hands of Paxos, which also means that Binance has left risk exposure for the other two stablecoin companies. Two stablecoin companies had a black swan incident. Paxos’ reserves under the protection of the asset isolation structure can only protect the BUSD on the Ethereum chain, and will not accept USDC and USDP on the Binance platform. At present, Binance has not announced whether it will bind the corresponding amount of Ethereum chain BUSD to USDC and USDP on their platform.
1. There is no additional fee for BUSD issuance and redemption;
1. Binance empowers BUSD with a lot of rights and interests. BUSD can enjoy lower transaction fee rates in Binance, BSC withdrawals with 0 handling fees and other activities, and a large number of defi projects invested by Binance are also beneficial to BUSD in terms of income design. There are weights tilted. Under the joint promotion of a series of products such as Binance pay, it is believed that BUSD will seize more market share in the future.
Non-US Dollar Stablecoin Track
At present, most stablecoins on the market are US dollar stablecoins, but with the development of the blockchain industry, users from all over the world are rapidly pouring into this emerging market and starting to use related products, so we have seen more Fiat currency stablecoins in countries and regions are being chained one after another, such as the Japanese yen and the euro. This article takes MMXN, a well-known Mexican stablecoin in Latin America, as an example to see the development status of this track.
MMXN - Moneta Digital
Moneta Digital, located in Mexico, issued the world's first stable currency MMXN anchored to the Mexican peso MXN, and has conducted in-depth cooperation with TruBit, the second largest local exchange in Mexico.
MMXN reserve situation
The reserve structure announced by MMXN is similar to USDT, and is hosted in Deltec Bank and its subordinate Delchain, but the official audit report cycle is long, and the reference lacks timeliness, which is the shortcoming of almost all non-US dollar stablecoins. This type of stable currency is currently relatively small in size, and it is similar to the initial stage of tether. It takes almost half a year to complete an audit.
Choose differentiated development and focus on solving local needs
Mexico has nearly 100 million active mobile Internet users, accounting for about 71 percent of the total population. At the same time, more than 60% of local adults do not have bank accounts. This is the status quo in almost all Latin American countries. Local users have become accustomed to buying various recharge cards in local stores and then shopping online. In recent years, Mexico The government has established a relatively complete regulatory and compliance framework for the blockchain industry. Under this special financial environment, it is undoubtedly the best soil for blockchain payment.
1. Upgrade the local payment system
Looking back at the development of China's financial payment system, China has skipped the era of credit cards and directly entered the era of mobile payment. The special financial environment in Latin America gives it a great opportunity to directly enter the blockchain payment era. In the middle of this year, Moneta launched a compliant blockchain payment solution under the framework of Mexican financial supervision to help local merchants quickly access a more convenient payment system.
Use MMXN to spend at a local coffee shop
According to the progress disclosed, within a few months after the function was launched, cooperation with dozens of stores in the local area has been completed. Although it is just the beginning, it also proves the blockchain payment solution in these areas. feasibility. MMXN said that it will continue to cooperate with more large chain stores in Mexico. This is also the advantage of this kind of local team. They can operate in a more refined manner, and bring faster payment and transaction experience to the local people. At the same time, they are also expanding the incremental market for the block industry.
2. Solve the exchange demand
According to World Bank statistics for 2021, Mexico is the second largest recipient of remittances in the world, mainly due to its high population flow. At present, Mexico is the largest source of immigrants in the United States, accounting for 24% of the total immigrant population in the United States. At the same time, there are about 12 million people working in the United States, accounting for about 15% of its labor force. The Mexican government does not allow individuals to open U.S. dollar accounts, but only allows companies to open accounts. Therefore, Mexicans working overseas or immigrant Mexicans want to return to local investment and consumption, only through cumbersome procedures or high fees.
TruBit Wallet Integrates MMXN Stablecoin as Payment Method
Compared to traditional finance, high transaction costs, slow settlement times and minimal banking facilities. MMXN, a stable currency attached to the value of the local legal currency, is undoubtedly a better solution. Moneta said that there is no handling fee for the exchange between MMXN and MXN, and has reached a cooperation with TruBit to integrate the wallet to further reduce the user's threshold.
MMXN is currently deployed in multiple low-gas chains, and has done corresponding security audits: https://github.com/moneta-digital/mmxn-specs/blob/main/CertiK_Verification_Report_MonetaDigital_tron.pdf
This year, due to differences in the monetary policies of various countries, there have been unprecedented fluctuations in the currencies of different countries in decades, which is also accompanied by many trading opportunities and hedging needs. Another benefit brought by the increasing variety of stablecoins is that these stablecoins anchored to legal currencies in different regions together form an on-chain foreign exchange trading market, allowing ordinary users to complete hedging and transactions conveniently.
Summarize:
Seeing this, I believe you have a clearer understanding of various centralized stablecoins. The three major stablecoins and regional stablecoins each have their own characteristics and advantages (moats). We can choose stablecoins that meet our own security and business needs according to our own situation.
Stablecoins are an important factor in the ecological growth of a public chain. Taking Cosmos as an example, after the collapse of luna, the Cosmos ecosystem currently does not have native stablecoins. Users who want to use stablecoins can only bridge the wrapped ones through cross-chain bridges. Stablecoins are such a cumbersome and accident-prone fund access channel. This undoubtedly limits the development of its tvl and ecology to a certain extent.
If a public chain relies too much on one or two stablecoins, it may limit the degree of decentralization of the ecology. For this reason, Vitalik suggested that the community should choose different kinds of stablecoins as a potential means of fighting centralized players: "The best answer I can think of is to encourage people to adopt more kinds of stablecoins. People can use USDC, or Use DAI and more". At present, the volume and mechanism of decentralized stablecoins such as DAI are still difficult to meet the needs of the market. Therefore, there are more and more centralized stablecoin service providers competing with each other, which is undoubtedly a good thing for users and the community. Just like the original intention of our industry is "decentralization", so I also appeal to everyone not to rely too much on one stablecoin, and to give more opportunities for stablecoins, so that major stablecoin service providers will continue to improve and upgrade themselves, bringing users Higher security and more convenient products.
Through the case of MMXN, we can see that the business of non-dollar stablecoins and dollar stablecoins is not competition, but complementary. In 2022, around 1.7 billion adults worldwide will still be unbanked. This shows that financial inclusion is still far from enough. Therefore, MMXN's attempt in Mexico is worthy of our attention. If its model is successful and applied on a large scale locally, it will also have a positive demonstration effect on other regions of the world. That will link the blockchain with more physical industries, and truly enter the lives of the people.
In the future, major stablecoin companies may adjust and change their reserve positions and compliance structure design. We once again appeal to the community to pay attention to the follow-up audit reports of the above companies. This article is based on the existing public information research. And project endorsement does not constitute investment advice.