Building Stablecoins for the Mass -- David Zhang, STABLY

I'll just give a quick intro about myself. I mean, so my name is David. I've been working in the stablecoin space for a long time, uh, since 2018. Uh, we were one of the first stablecoin projects to launch. So back then it was basically Tether, Circle, TrueUSD, GeminiUSD, and then us. So our stablecoin was called USDS. Which is different than this USDS, which is recently launched. And our original mission— can I get the lifeline?

It's, uh, it's, uh, work is fun. Okay, uh, ad, like, uh, ad sign, 177 HPT. Uh, go to circle member. Now circle member. You're going to show slides, right?

I'm not going to show slides, but I will show, um, I thought about putting together slides, but I feel like no one likes slides, right? Work is fun at what? 177 SBT. Very secure Wi-Fi password. Okay, so before I present something, I guess just a little bit about myself, right? So I started doing stablecoins in 2018. We started with, you know, normal, like, fiat-backed stablecoins. So our stablecoin was called USDS. Which was a US dollar-backed stablecoin. And our original mission was to make it easier for people to move money between their traditional accounts, like, you know, stock accounts or bank accounts, stuff like that, into this new emerging DeFi ecosystem. Unfortunately, we lost to Circle, who has now dominated that space. So since then, we've also launched stablecoins for other companies as well. So we basically took our experience launching our own stablecoin and we launched the first, what we call, stablecoin as a service business. So there we helped a bunch of layer 1s like Tezos, Ripple, Stellar, like a lot of the very early blockchains. Launch their first stablecoin. That business we eventually got overtaken by Paxos, who is now doing stablecoins for companies like PayPal, whatever, right? So I think we were too early on all of these use cases, and now we're doing a DeFi-based stablecoin, so hopefully we're just in time for this one. So essentially, you know, I've had, I've I've seen like everything from fully compliant Web2 stablecoins all the way to, I mean, not quite the most extreme like Terra Luna level, but I've seen some pretty crazy stablecoins out there. So my goal today is to basically give you guys an overview of what the space has already learned, right? So you guys don't have to relearn the same lessons, make your own Terra Luna or whatever, right? As well as teach you guys, you know, like, if you, you know, are thinking about using stablecoins, like, what are the different options, right? Because many times when people think about stablecoins, they usually think, okay, we just use USDC or we just use USDT, but oftentimes there's actually a lot of value that you're giving up when you just use the default option. Because how does, you know, Circle and Tether, how do they make money, right? They make money when people use their stablecoin and don't ask for anything in return, right? So the first thing I want to do is I'll map out the different types of stablecoins for you guys. So who can give me one example of like a famous stablecoin? Stablecoin. I mean, I gave you guys a lot already.

I think you need to change the view to mirroring.

Sorry, I'm taking volunteers. So obviously there's— yeah, DAI. DAI, okay, that's a very good example. So who here knows how DAI actually works? Overcollateralized? Or what?

Overcollateralized on ETH?

Yes, correct. So why is this like an interesting use case? Like, why would I want to deposit ETH to mint DAI?

To use leverage?

That is a very good use case, yes. So we'll put a CDP stablecoins like DAI, for example. So, yeah, essentially the most common use cases are leverage or tax benefits. Yeah, you know, there's many, there's actually many reasons, which I think is why Dai is so successful. So who here is familiar with, like, you know, overcollateralized loans in like traditional finance? Is anyone okay? Can someone give me a traditional finance example? Um, I am just based on my experience. So basically collateral means that you, for the users, has to go through a lot of, you know, like steps of verification and also KYC to let the banking system know about their— what, how much collateral can be, and they can offer on them.

Bunch of loan products for that.

Yeah. Like bank loans. Yeah, so banks offer these types of loans. But more specifically, right, I mean, these types of loans are usually seen as lower risk, and so the interest rate for them is usually lower, right? And this is actually a way that a lot of people who are smart with their money try to make their money more effective, right? So I'll give you an example. Let's say you have a house, right, and you own that house, but you want to, you know, start a small business or maybe buy another house or something like that, right? But you don't have a lot of cash because you spent all your cash on buying your house, right? So how can you buy another house? Well, you can use your existing house as collateral, borrow money from the bank, and then use that money as down payment for your second house or to start your business or whatever, right? And the bank is okay with giving you this loan because they know that if you don't pay them back, they can just take your house, right? So it's the same idea with CDP stablecoins. So CDP stands for collateralized debt position. So in the case of DAI, the collateral is Ether. Well, it used to be Ether, now it's a whole basket of other assets, but basically, you know, MakerDAO, which was the issuer of DAI, took this idea and they were like, let's do it with crypto, right? So that was the first very successful on-chain stablecoin, right? We also talked about fiat-backed stablecoins, like, you know, USDT, USDC, for example, right? So with fiat-backed stablecoins, like, why would I want to use a fiat-backed stablecoin? Like, you know, uh, security. Okay, security is a good one. Liquidity is another good one. Yeah, like, essentially, like, fiat-backed stablecoins are about as close to spending, you know, real currency as you can get on the blockchain, right? Because the, like, the government itself does not issue any currencies on the blockchain, at least not today, right? So if I want to get government currency, I can only go through the banks that the government say, okay, these are the banks that are allowed to hold government currency, or I can have cash or something like that, right? If I want to get it on the blockchain, someone needs to basically 'Give me a guarantee that this random token that is not intrinsically worth anything can later be exchanged for currency that the government will accept.' So this is where fiat-backed stablecoins first came from. So yeah, the main advantage of fiat-backed stablecoins is probably their liquidity, because any market maker or any trader would be willing to accept it because they know that they can redeem it for the underlying government currency, which they can then spend in the economy or whatever. So, okay, but what's the downside of fiat-backed stablecoins?

No upside. No upside.

No what?

Upside.

Yeah, no, sure, I mean, all stablecoins, yeah, no upside. The biggest risk of fiat-backed stablecoins historically has been what you would call counterparty risk. So when you spend fiat currency normally, like if I go on the street and I buy some food and I use cash, the street vendor is willing to take my cash because they know that the government requires everyone to accept this cash. I have cash, right? But when I spend a stablecoin on-chain, I'm trusting that, like, whoever's receiving my stablecoin trusts that they can later sell that stablecoin to someone else or redeem it for the underlying currency, right? But unlike the government, like, you know, these entities, you cannot guarantee that they have the cash, right? Like Circle, for example, you know, they are not the US government, they cannot create US dollars out of thin air. They have to work with other banks and institutions like that to make sure that your USDC can later be exchanged for cash, right? And some people think that, oh, of course, you know, like, what can go wrong? But actually, many times, you know, this has— there has been like a scare where, you know, okay, maybe not all the money is there, right? I don't know who's been in the crypto space for long enough, but there was one time where USDC, you know, fell to like 85 cents or something like that, right? USDT many times has fallen to like—

I think it was a hard situation for USDC.

It was what situation?

It was a hard situation for USDC itself because it shows that it is literally backed by real currency.

Yeah, I mean, it ended up being a, like, a, you know, a good proof that, you know, they have good risk management and stuff like that. But the market panicked because, you know, like, they know that it's not a guarantee that the funds are there, right? Like, if the government did not backstop some of these banks that were collapsing at the time, which is why everyone was so scared shared, then it's possible that USDC could have actually lost a significant amount of money, right? So anyways, those are the trade-offs for fiat-backed stablecoins. Another one that I alluded to earlier is like algorithmic stablecoins, right? Or I'll call it derivative stablecoins. So, you know, this can include things that are, you know, currently very popular like Athena's USDE, for example, right? Or in the past, things like Terra UST, right? You know, there's been other experiments here, right, like f(x)USD as well. So this is basically a term to describe a type of stablecoin where the way that it keeps its price at $1 relies on some exotic market dynamic. So like, for example, USDE is like a basis trade on futures exchanges, right? So basically they go long and short the same amount of Bitcoin, for example. So in theory, their exposure to Bitcoin is $0, but because they're going long and short at the same time, usually going short will pay you more yield than it costs to go long, whatever. I'm not gonna explain the full mechanics, but basically, you know, there's like a spectrum of derivative stablecoins, right? On one end you have ones that sound reasonable and should work in theory, and then on the other end you have like full Ponzi-nomics type stablecoins like UST, right? So oftentimes Like some of the most interesting innovations in the stablecoin space are happening here, but because of the trauma that people have with a lot of these failed projects like Terra, the whole space kind of gets a bad reputation from that. So we'll maybe deep dive into some of the more interesting ones later, but at a high level, like these are the major types of stablecoins. Now, Regardless of how the stablecoin is created, all stablecoins fulfill basically the same role within the economy, right? So like, why would you want to hold a stablecoin, right? Like you said, there's no upside, right? So why do I want to hold a stablecoin?

So I can do stuff on on-chain.

Okay, yeah, so we'll make a slide called use cases. Okay, so yeah, like on-chain DeFi stuff like that, right? Because there's no way to use fiat currency on-chain without a stablecoin. Anything else? Payments, lending and borrowing. So like, but why can you not do these use cases with, you know, like Bitcoin or Ether or SOL or, you know, anything else? Okay, so basically the use case here is you want to avoid volatility, right? Like let's say for example, you know, I am in a long-term business deal with some other company, and I tell them like, hey, you know, in 6 months, like, this is what I want, I will pay you this much. But if I'm paying them in like Seoul, for example, right, they could end up receiving, you know, 3 times as much in 6 months, or they could receive half as much in 6 months. So it's very hard for them to plan using like a native crypto-denominated transaction, right? So, you know, there's many examples on-chain, like there are marketplaces, for example, where you can get like long-term loans. So that's a lending and borrowing use case. There's apps where you can use stablecoins to pay when you go like overseas, for example, right? So I actually use one in Vietnam. So I don't have a bank account here, but I use a payment app called Yodle. I mean, there's like a ton of these competitors, but essentially you just load up with some USDT and then you can use the QR system and pay local merchants. And the way that I load up my account is I deposit USDT into the wallet that they give me, right? So payments is a big use case. But essentially, like, the thing that these things all share in common is like you want to somehow use fiat currency, but you want the programmability or you want the, you know, borderless property of crypto somehow, right? Another big one is like overseas, like remittance, for example, right? I know there's a lot of people who, you know, maybe they work in a foreign country and they want money back home. I actually know a lot of people here who use like USDT for that reason, right? So for all of these use cases, you can actually use any of these stablecoins, right? You can use USDC, you can use USDT, you can use DAI, you can use USDE. So why would a user choose one stablecoin over another when they are, you know, let's say sending sending money to their family, for example.

Take this liquidity.

Okay, liquidity is a big one. Yeah, anything else?

Adoption.

Adoption. So yeah, which platforms support it, which wallets show it. Yeah, integration. Risk maybe, right? Like what's the chance that the stablecoin loses value, right? I mean, obviously it's not gonna go up, but stablecoins have shown that they can go down, right? So there's essentially a trade-off, you know, in these factors depending on which type of stablecoin you want to choose, right? So for example, If you go with USDC or USDT, you know, earlier we already said that they're the most liquid types of stablecoins, right? Because, you know, people can just redeem it for the underlying fiat currency. So why would someone use a different type of stablecoin? So the answer is that any type of stablecoin which is not fiat-backed usually has to give the user some unique benefit, right? So in the case of DAI from the earlier example, the unique benefit is lower borrowing costs, right? So if you borrow DAI instead of borrowing USDC, you will pay less interest, you know, against your ETH, for example, right? Or USDE, for example, right, like from Athena. So in that case, Athena actually gives you a way to earn money on your USDE because if you stake it for their sUSDE product, they will give you a portion of the yield that they're generating from the stasis trade that I talked about earlier, right? So basically, if you want to do something that is not a fiat-backed stablecoin, you have to think about, you know, what is the unique selling point? Of my stablecoin product, right? And even if you do a fiat-backed stablecoin, honestly, it's very hard to compete against USDC and USDT, right? So the question you have to answer is basically why would a user use this stablecoin, right? So I can give you an example from my project. So I have a project which is called DTrinity. So I'm just gonna shill this project for a little bit because I understand it the best. So we wanted to launch a stablecoin that made borrowing on lending protocols even more efficient than like DAI, for example, right? Because the problem that we saw was that, you know, many users, when they use lending and borrowing platforms, they're using something like Aave or Compound, you know, or like Kamino, for example, right? However, when you borrow like USDC or USDT on these platforms, Circle and Tether, like, they make money from your business, right? But you as a user, you don't get anything back. So what we realized was users are actually losing a lot of money when they borrow USDC or USDT. So what we did was we created a stablecoin that actually pays users when they borrow on lending protocols. We also pay users when they use our stablecoin in other DeFi use cases as well. So like the overarching differentiator for our stablecoin is we pay users who use the stablecoin Unlike a lot of these other projects who pay users who like hold their stablecoin, for example, right? So we are encouraging money velocity. So this is just one example of like how you can think about stablecoins differently, right? Because oftentimes people just think, okay, stablecoin, it's a boring product, it's always worth $1, you hold it in your wallet when you are selling your or crypto or whatever, right? But actually stablecoins are also ways that you can pass value back to users, right? So a very famous example of this is Aave's GHO. So who here has heard of GHO before? Okay. So this is, a relatively more obscure stablecoin, but essentially the problem that AAVE wanted to solve was that, so they have two problems, right? So one problem is that, okay, you know, people are borrowing a lot on AAVE, but when people borrow other stablecoins, like AAVE doesn't get any benefit directly themselves, right? And the second problem that they had was, okay, in a lending protocol, if the collateral ever becomes, you know, worth less than people expect, then the protocol can experience what is called bad debt, right? So they basically created this also as like an insurance mechanism for the protocol so that people who stake their GHO and AAVE can earn a yield in return for being the insurance program for the protocol, essentially. So, anyways, all those details aside, the high-level message I'm trying to send here is that, you know, AAVE realized that they had a problem with their product, and they realized that one way that they could fill that hole, or solve that problem, was by creating a stablecoin that rewarded users who added value to the Aave ecosystem, essentially. So usually when we talk to other businesses or protocols that are thinking about issuing their own stablecoin, that is the first thing that we ask them, right? Like, you know, what is the actual problem that you're trying to solve? Because if all they need is a way to represent USD on-chain, we tell them to just use USDC or USDT, right? Because it is not— I mean, it's actually very simple to create a stablecoin, but it's not easy to operate a stablecoin. There's a lot of capital-intensive operations if you're doing a fiat-backed stablecoin, right? There's a lot of smart contract risk if you're doing a crypto-backed or derivative stablecoin. So unless you have a very good reason, you know, the first question we ask is like, what problem is USDC or USDT not solving for you today, right? So at a super high level, that's kind of the framework that I use to think about stablecoins, right? So whether you are a project that's looking to integrate a stablecoin or whether you're thinking about launching your own stablecoin, this is typically how I start. So now that we've covered like the different types, the different use cases, and, you know, how to approach thinking about this problem, what I want to do is I want to actually deep dive into like maybe one or two of these projects depending on which one you guys are the most interested in, because I don't think we'll have time to go over all of them, but I one or two we could do, right? So who here has like a burning question, you know, they really want to know like how, you know, Maker works or how Athena works or what happened to Terra Luna?

I actually have an interesting question. ISC, have you heard of that? International Stablecoin?

Have I heard of what? ISC. ISC.

They launched it on Solana 2 years ago. Uh, it is backed by real real world assets like gold.

Ah, okay. So I haven't heard of ISC, but yeah, there's been many similar types of projects.

Yeah, so they were like maintaining, uh, the prices actually going up over a period of time.

I see.

Not money.

Okay, so it's like a basket of like stable assets, right?

Yeah, but I had a traditional assets, I would say, not just Bitcoin and these things, but It is also going good, but they were unable to get that option. What do you think is the major challenge?

Okay, yeah. So the way that I would categorize these stablecoins is I would say that this is what I would consider a pseudo-stablecoin, right? It's not as stable as a 1-to-1 backed stablecoin., but it's less volatile than like BTC or ETH or stocks, for example, right? So the most famous example I can think of, there was a project which pegged itself to the, like, it was like the inflation rate or something like that. I don't exactly remember. There's like some IMF basket that tracks, you know, global cost of living and stuff like that. And they basically tried to create an instrument which tracks that, right? So the value slowly goes up over time to account for inflation and stuff like that. And it's like worth, you know, some value that is like between all the different currencies and whatever. So it was a very technically impressive project, right? Like they got a lot of praise, their audits were spotless, they had a very prestigious team, right? People who were like, obviously knew what they were doing, but they also gained no adoption. So I thought about this problem many, many years ago, and the conclusion that I came to is that right now there's kind of like two extremes. So there's like the traditional financial world where 99% of transactions and value happen. And then there's like crypto and DeFi where 1 or 2% of transactions and value is being stored, right? And the types of people who are willing to use DeFi, they're the types of people that are, you know, maybe they're early adopters, right? Like they love new technology. Maybe they're you know, very risk-loving, right? Like they see like the 60% APY and they just can't help themselves but, you know, go all in, right? Or they're, you know, like they have some sort of philosophy or belief, like they believe in global money or they believe in censorship-resistant money or something like that, right? So these people tend to be you know, like, they tend to be okay with accepting risk for one reason or another, right? Either because, you know, they want the high potential or because they want to, you know, stand for something or whatever, right? And on the other side, you have everyone else, right? You know, most of our parents, you know, many of our friends, right? The people who think the current system is good enough, they don't want to bother learning, how to manage crypto and whatever. So the problem with these semi-stablecoins that try to do something interesting like combat inflation or track a relatively stable basket of assets is that it appeals to neither of the two crowds, right? For the traditional crowd, they still have to learn a new technology, but they're not getting much of the benefit as they would from full adoption, right? And the full adoption crowd sees these as like, you know, half-baked, you know, like solutions that Bitcoin or Ether has already solved, for example, right? And the people who truly want stable value already have regular stablecoins like USDC or USDT, right? So you're essentially left with a very small number of users who care enough about going on-chain, they're willing to use these products, but they don't really care about missing out on, you know, the upside potential of native cryptos, and they want to combat inflation or something like that without using DeFi. Like, there's a lot of ands that you have to fulfill to be hit the target market for this type of product, right? And I would say it's the same reason why stablecoins for most currencies have not succeeded either, right? Because in global trade right now, you know, dynamics are changing a little bit, but USD is still like more than half of all global settlement, right? So because of that reason, most international companies or, you know, traders or whatever, they're willing to accept USD. And because the liquidity is so deep, like, for them, the little benefit of settling their trades in their own local currency is outweighed by the extra liquidity of USDC or USDT, right? So even Circle, who is, you know, one of the biggest stablecoin companies, they tried to launch like a Euro-backed stablecoin, no one uses it, right? I bet many of you didn't even know it existed, right? But essentially, all of these non-USD stablecoins so far have fallen into that trap. Now I don't think it will always be like this, right? I do think at some point in the future we will cross a critical threshold where enough people are using crypto from a certain country or, you know, in a certain currency, that it will start to make sense for them to have their own local stablecoin or something like that. But I don't know, my predictions are always too early, but I think we're at least another like 4, maybe 8 years away from something like that.

So hopefully that answers What's your opinion on Itina? Because I know a friend and, uh, he has been doing the looping on Itina, and as I know, the default API is like 8%, but after his looping, he got like 65%. That's crazy.

It was easy money.

It's like 65% on a single point. Yeah, so I think it's kind of a funding, but the model It sounds like there's no risk, you know, except that Binance collapse or something. But yeah, I just want to know your opinion on that.

So Athena is taking advantage of like basically an asymmetry in the market, right? So for everyone who doesn't know how Athena works, I'll explain it real quick. So when you— who here has traded on a Perps DEX or like a futures exchange? Right. Okay, so when you go long on a Perp DEX, there's something called like a funding rate, right? It's the interest rate that you pay for the leverage that the exchange is giving you. So it's not actually the exchange that gives you that interest rate, it is somebody else on the other side of the trade, right? Someone who's going short on the same asset that you are going long, right? And these people who are going short, they earn the interest rate that you are paying them. So what Athena does is they take advantage of the fact that so many people want to go long on BTC. So what they do is they take, you know, regular Bitcoin, they deposit it onto an exchange, and then they short that same quantity of Bitcoin, and they just earn the interest rate that people are paying them, right? So now the question of course is what is the risk, right? It sounds like it should work, right? I mean obviously if one of these exchanges gets hacked then something bad could happen. I mean actually recently there was a scare about this, right? I think during the Bybit, was it the Bybit hack or something? I don't remember. One of the exchanges that Athena was on, you know, they got hacked, right? But it turns out that Athena is actually using a different custody provider called Copper. So they hold all their Bitcoin off of the exchange, essentially, and they have some sort of agreement with the exchanges to like settle their trades like once per day or something like that. So, you know, obviously the Athena team, they've done their homework. They've, you know, done more than the basic level level of, you know, precautions that you would expect like a normal trader to take, for example, right? But the question is, are there still risks, right? You know, if we ignore the fact that their Bitcoin wallet could get hacked or something like that, right? Like, that's the obvious risk. What is the other risk? So the most well-known risk that was talked about in the early days of Athena is like negative funding rates, right? So let's say we enter a bear market. And during the bear market, instead of people willing to pay to go long, people are now willing to pay to go short, right? Like if everyone agrees that Bitcoin is going to go down, for example. In that case, Athena, instead of earning money on their short position, they could be paying out money on their short position instead, right? So the way that they try to mitigate do this is they keep like a buffer, so they don't pay out all the money that they make. They keep a portion of it to, you know, account for this possible scenario, but they've only like modeled their buffer based on the past few years of historical data, right? And as we all know, you know, the future is never exactly like the past, right? So if we enter like a period of time, for example, where funding rates stay negative for many months in a row because we enter like a very long bear market or something like that, then that's definitely a risk to Athena, right? Though they are starting to diversify their sources of yield as well, right? So Athena now gets a lot of their yield from like treasury bills and stuff like that because they've actually saturated the market for people who want to go long on Bitcoin. So their biggest risk, I think, is actually just losing their differentiator, right? Like, Athena was able to pay out a very crazy yield in the beginning because there was a big arbitrage opportunity to, you know, sell like short Bitcoin positions essentially, right? But now that they are such a big player, their positions actually compress the interest rate that borrowers are now paying. So in a way, they've reduced their own edge to the point where now they're only paying like 8%, like you said, right? It was 20%. Yeah, it depends, right? So depending on the market environment, right? Like during certain months when Bitcoin does very well, then funding rates go up and Athena's yield goes up, stuff like that. But by and large, like the very early days of Athena, the reason why so many people jumped on in the beginning is because even without looping, they were paying like 30-40% APY, right? And if you loop that thing, I mean, you could get like 200-300% 300% APY easily, right? So like that big, like, you know, free money opportunity I think is mostly gone at this point, right? So are there opportunities to earn, you know, more returns on Athena compared to like sDai, for example, right? Definitely yes, but you have to be be, I guess, okay with the fluctuating rates, and you have to be okay with the perceived higher risk, right? I say perceived higher risk because, you know, you do have to trust that all the pieces in the Athena ecosystem have to move well together, right? Like, for example, you know, even if their custodian never gets hacked, it's possible that maybe like some of the executives on the team, you know, get phished or they get kidnapped or they get, you know, ransomware or whatever, right? Like there are a lot of risks that are not visible to normal everyday users, right? Whereas something like Maker, for example, it's been battle-tested, all the code is on-chain, right? So people perceive the risk to be lower. And the way that you can So one rule of thumb for risk, this is not always true, but the rule of thumb is like, you know, what is the average yield that people demand in order to hold the asset, right? And sDai is like one of the lowest consistently yielding products that people are still willing to hold because people view it as like the on-chain treasury bill, right? Like the benchmark yield. For DeFi assets. So Athena has not earned that yet, but maybe in time they will. But they have to go through enough of these bad events and prove that they can, you know, withstand the test of time, right?

So I actually, you know, went through the docs really carefully, and I saw that they did some math on the funding thingy. So like did analyze this over like previous, even in the bear market, and they saw that even during bear market they can still make some money off that. So I think that, that one is reasonable.

If you think that the last 3 years are going to be represented, I think it might be.

I mean, it's reasonable because in long term, like in 10 years, all assets will go up. So I think it's somewhat reasonable So I still can't like think of a scenario that it will collapse. Can you give me like a scenario of that?

Like, so are you asking for a scenario where the funding rate goes negative for a long time, or are you asking for other—

I'm asking about the looping and how will everything collapse when people just— everyone is looping and it, you know, makes the market cap go crazily high and there's only a small asset behind.

Okay, so you're asking about the risk of looping, not looping, and in a case— so, okay, I will cover these two cases separately. So first let me talk about looping. So who here knows what looping is? Okay, so looping is just a fancy DeFi term for taking one asset that is paying out some high interest rate borrowing some asset that costs less than what the other asset is paying out and making the difference, right? In traditional finance, this is called a basis trade. So for example, right, like let's say you have sUSDE, which is paying out, you know, 20% APY, and let's say you can borrow USDC at 10% APY, right?

So those fixed fixed rates, or do they—

okay, that's another good question. So typically these are variable rates, right? So looping carries the risk that you might go underwater if borrowing rates go up or if yields go down, right? However, there are ways to fix rates for certain use cases. So Pendle, for example, you can use to fix the rate of your collateral. There are some lending protocols which which lets you borrow fixed rate for a certain term as well. But the most common type of looping is variable rate looping because those markets are usually the most liquid, right? Because the moment you make something fixed rate, that asset is now not fungible anymore to the underlying, right? Because you have some— usually you have some maturity that it's fixed rate for, right? So looping typically carries the risk of liquidations, right? So I'll give you guys an example. So let's say we have, you know, sUSDE is 20% APY, and let's say borrowUSDC is 10% APY. So let's say you want to go crazy, you want to go like, you know, 20x leverage on this thing, right? So what you would do— so let's say you have, you know, start with $100. So what you would do is you would essentially borrow, uh, $1,900 in USDC, and then you would swap it for sUSDE. And now what you have is $2,000 in in a sUSDE collateral and $1,900 in USDC debt, right? So your net worth is still $100, right? So nothing has changed there. However, now you're earning, you know, 20% on $2,000, right? So that's $400 in yield, and your borrowing cost is, you know, $1,900 times 10%. Which is $190 in borrow cost. So you're netting $210, and $210 over $100, you're making like 210% APY basically, right? So that's where these crazy APY numbers for Loopring come from. But the risk here is that like this is very sensitive to both of these inputs, right? Like if USDC borrowing cost goes up, then your looping yield goes down drastically. If sUSDE APY goes down, then your looping yield goes down drastically as well. So that's one risk, right? The other risk is, okay, let's say sUSDE de-pegged a little bit, right? Like during the Bybit hack, for example, it de-pegged a few percent as people got scared and fled for the exit. So if you were 10x leveraged, your liquidation threshold is— I mean, it depends on the lending protocol, but, you know, it would probably be something like 95 cents or something like that, right? So if your liquidation threshold is 95 cents and USDT fell below 95 cents, then wipe your whole account, right? Whereas if you were unleveraged, then you only lose 5% or whatever, right? So the big— the biggest risk by far for looping is that the assets that you thought were correlated become uncorrelated, right? Like, this is only a low-risk trade if the correlation never breaks, right? Another common form of looping is is looping like liquid staking tokens, right? Like, you know, StakeETH or, you know, Sanctum SOL or whatever, right? So you take like a yield-bearing version of the asset and then you borrow the non-yield-bearing version and then you do the same thing, right? So for a period of time, you could earn— like, there was a period of time, I don't remember how many months ago this was, but you could earn like like 120% APY on holding ETH, for example, which is crazy, right? I think Solana had something similar as well, though not as crazy. But like, essentially, with looping, you can magnify your returns, and it's seen as low risk if the correlation between the assets is real, right? And one way that you can check what the correlation between the assets is, is you can check the oracle feed that the lending protocol uses for the assets, right? So some lending protocols, instead of tracking the market price of these assets like sUSD, for example, they will actually track the underlying collateral, right? So they will have some sort of feed into you know, maybe like a bank account or like something like that, or for on-chain LSTs, right, they look at all the balances of the validators, something like that, right, and based on that you get a feed. So as long as the validators don't get hacked or as long as the bank doesn't lose money, then you are truly correlated, right, and in those markets usually the borrow cost tends to go up to very close to the APY of the underlying asset, right? So in— if this were a real example, the borrowing cost of USDC would probably be something like 18%, right? So the amount of free money that exists in looping in practice tends to be not that high unless you are taking on like extra risk, basically. So that's the risk of looping. I mean, the risk of Athena, I mean, other than what we talked about, I mean, the biggest thing is just counterparty risk, right? You really have to trust the team to manage the funds well. You have to trust their custodian. You have to trust the exchanges. I mean, the more people you have involved, like, if any one of these parties doesn't do their job correctly, it could result in lost funds, right? That's the risk.

So yeah, I think that might satisfy my answer. I think— but let's say, let's say that if the USDE will not be depegged, he will be earning 60% every year, right?

Assuming the rates stay the same. I mean, if USDE really proves itself to be safe, I think more people will come in, which will lower the yield on SUSD, right? And more people will want to loop it, which will increase the borrowing cost for those markets, right? So I think it's unlikely that the 60% looping returns would stay, right? Most likely what would happen is it would go down over time. —enter the market, yeah, until some equilibrium is hit. It will probably always be higher than just holding sUSDE, but it probably won't be that much higher in the long run, right? There's no free money. Just Atlas money. Yeah. Okay, any other stablecoin questions? Projects? Otherwise we can play a game. Everyone loves games. Any other— yeah, any other projects anyone wants to deep dive into?

I just want to deep dive into more about Athena, like how can— how would they execute, like, do all the custodians, how can they deal with them, how can they deal with the holding— and stuff?

Can you share more about that? So I don't think they share a lot about their, like, operations, at least not from what I've seen. So, okay, if I had to guess, right, so this is just my guess, this is not based on what they actually do, but my guess is that Athena themselves, they probably actually work directly with a lot of, like, market makers and professional trading firms, because their biggest challenge is for every dollar that comes into USDT, they need to create that, you know, net neutral BTC position, right? So that means they need to go out and buy spot BTC, and they need to short the same amount of BTC on one of their exchanges, all without, you know, losing money to slippage or moving the market too much or something like that, right? So I don't think that they're doing that internally. Of course, I don't know. I think they're probably working with some of the big market makers on that, because the market makers, you know, they want to have like inventory, and with inventory they can make money because they can make the order books deeper or whatever, right? Or make more markets. So I'm sure there's some deal there where Athena rents these market makers liquidity. In exchange, the market makers help Athena scale up and down. It's actually kind of like how ETFs work, if you're familiar, right? Like, if you buy an ETF, the ETF issuer isn't going out and like buying a little bit of each share, right? They're usually working with market makers who are called like authorized participants, companies who, you know, bundle up big batches of shares to create ETFs and stuff like that. So that's my guess for how they're doing the operations, because from what I know also, the core Athena team is also pretty small. So I, I would assume that they outsource a lot of their operational work, but of course that introduces risk, right?

Yeah, there are many parties involved.

Yeah, there's more parties than we think, probably.

Also, there is CRVUSD that I really like the concept of it. Yeah, and right now it provides around 13% APR. I think it's relatively risk-free according to the other positions while we compare with the sUSDC.

Yeah, I mean, so CRVUSD is an example of a CDP stablecoin that also tries to solve a problem of the stable— of the protocol, right? So CRVUSD is issued by the same team behind Curve, which is the stablecoin-focused DEX. They also have their own lending protocol, and their goal with CRVUSD, I guess, is to capture more of the stablecoin volume and TVL through their own stablecoin rather than like USDC or USDT or whatever, right?

I mean, it makes sense because they have the best DEX for you to be able to trade between these stable currencies because of their algorithm. And of course they are going to provide some sort of credit, generate some sort of yield on top of the whole trading. Yeah, so using those tools that literally created by those stables as a collateral. I mean, it makes sense actually in terms of safety and exposure.

Yeah, I mean, so the one thing that has been kind of surprising to me is that CRVUSD hasn't actually gained as much adoption as I thought it would. So I think the reason for this is like if Curve pushes CRVUSD too hard it might alienate other stablecoin projects from joining the Curve ecosystem. Right? This is my guess. Oh, makes sense. I don't know if this is true, right? So they basically have this flagship product, which is battle-tested and a lot of people trust and love, and they now have this question that they have to ask themselves, which is, do they risk the flagship product in order to promote this new product that they're putting out there, right? And I'm guessing that they're trying to be very cautious with that.

So I don't know, makes sense actually in terms of competition.

Yeah, cuz I mean, sometimes you don't want to compete with your customers, right? It'll scare them away. Okay, if there's— is there any other questions before we move on? Okay, cuz I want to play a game with you So I've taught you guys a lot about stablecoins now, so now everyone is going to operate their own stablecoin project, okay? So there is a game from a company called StableWatch where you can simulate running your own stablecoin project, and you will go through decisions like, you know, what kind of stablecoin stablecoin you want to make, what happens when, you know, certain things happen in the market or whatever. So anyways, if you want to scan this QR code, or I will pull up the website as well. Uh, yeah, uh, I don't actually know if their game is still listed on their main website. Yeah, okay, but the URL for their game is here. I'll add it. Yeah, it's ybsgame.up.railway.app.

Ah, yes, I'll send the link in the group as well.

Yeah, so I will make a lobby for everyone to join. But basically, so, you know, I actually use this game for my own team as well because it actually gives— I mean, it's not realistic in the sense that, like, you know, like the types of things that happen and whatever, but it gives you an idea of, like, what are types of concerns that you might have when you're operating a stablecoin. So, create a room. Okay, so in the room ID field, you can—

can you throw that QR code up there one more time real quick?

Yes. Grab it. Yeah, thank you. We have one person. And where does that code go? Uh, it's up here. V— sorry, W, V, P, S, H, X. Okay, so the goal of this game is to launch a stablecoin with the highest TVL, and the way that you lose the game is you run out of money. Okay, so like there is the money in in your stablecoin, which is the TVL, but there's also the money that you need as a project in order to operate the team, you know. So it's like a simulator. Exactly. Yeah, that's correct. Okay, anyone else? Otherwise I'm gonna start. Do you use the debug mode multiplayer? It's unnecessary, right? No, yeah, I think it's unnecessary. I think it's there because when the game first launched there were some bugs, but I'm pretty sure most of those bugs have been fixed.

How long is usually for a game, a round of the game?

Uh, it depends on how fast you are. So each round you have to make I think like 3 decisions or something like that, and there's like, I think, 12 or 13 rounds in total. So if you guys are fast, this can be like 15 minutes. If you guys are slow, I mean, I don't know. Okay, so yeah, the first phase is you have to pick what kind of stablecoin you want to launch. So Zombie on team. Yeah, after you pick, you also have to lock it in at the bottom. This seems horrid. You couldn't get in? Oh no, I just kicked out as well. Okay, if enough people got kicked out, I can, I can relaunch. Okay, did anyone else want to join and was not able to join? Okay, 3 people. All right, I'm gonna relaunch. Okay. Okay, the— wait, what? How do I kill this? Okay, I think I have to put a new name. Uh, David P. Okay, the new code is QABHS0.

So all this is— yeah, yeah, should be okay.

Waiting to start.

Is there a cap on number of players? Maybe there is, but I was in the waiting room and then I was just like, nothing happened.

Really? Yeah, I was the fourth person in the lobby and then it's all off. Zero, zero. It's possible that there's a cap, but I've never—

one in lobby and then zero in lobby. So the last one is 0, not O. Ah, okay. Yeah, 0.

Yeah, the last digit is 0, it's not O, okay? Q-A-B-H-S-Z-U. Yeah, can you back to the QR number? Yes, uh, if you want the QR code again. Okay, we have 10 people. 1 more. Almost. We have 10 people. Q-A-B-H-S-0. I can try to make the text bigger if anyone else— I said it wouldn't move. Okay. Am I waiting for anyone else? Okay, I'm gonna click start. Okay. All right, so pick your stablecoin type and then we will—

wait, what's the winning criteria?

Like, the more money they get? Whoever makes the most TVL for the stablecoin without going bankrupt. The most what? Uh, like, whoever has a stablecoin that has the, like, largest amount in circulation, basically. Okay, so your goal is to attract users and to attract money. Okay, so after locking strategy, just wait, right? Yeah, um, so once everyone locks in, this bar should go up to about the same.

So many strategies. 1 minute.

Wait, where's my budget? Uh, everyone starts with the same amount of money. You will see in the first round how much money. Oh, 1 mil. Yeah, you start with TBL, 1 million, and budget is 150K, right?

Yeah.

Do nothing. 5 more. Okay, 3 more. It's, it's not life or death, guys.

Can I, can I hold this one by myself? Like, can I play?

Yeah, yeah, I'll have to sing this after. There's even a leaderboard that I think resets every week or month or something. Okay, last person, come on. You get 10 seconds. 9. Okay, there we go. Okay, so action phase. So you are presented a series of actions that you can take. Some of the actions cost money, and you will see it on your own device. Some of the actions do not cost money, and they all have different impacts on users, TVL, stuff like that. And your goal is to maximize long-term TVL growth within your budget. Also, the other thing to keep in mind is the more TVL you have, the more money you make as well, right, depending on what kind of stable coin you picked in the beginning. Yeah, so in addition to picking the actions at the top, you also have to pick the things at the bottom and lock it as well. Okay, for those of you who have locked in the actions, don't forget to scroll down and also lock in your encounters. Good game. Yep. I'm going to be honest, this game has actually taught me some stuff about running this stablecoin project.

I mean, it worked for everything, right? You're basically like designing new economy, but it worked for games, for DeFi. Practice makes better. It helped me create good economics as well, I think.

Okay, 4 left. Remember, if you lock in the action, you also have to go down and lock in the encounter as well.

Those on Twitter, we actually invested in a mutual project.

I hope that's the title you picked for this. I did, I did. Okay, so turn 1 events. So, uh, there's a depeg for a certain type of stablecoin. If you pair your liquidity against this type, good luck. Um, all right. Once you guys are done reviewing, I can move on to the next phase. Okay, I'll give you guys 10 more seconds. 9, 8, 7, 6— when you're done reviewing, you have to click the button at the bottom. Okay, we're moving forward. Okay, so currently Leo is number 1. Okay, maybe cheating to not tell, but you spent half your budget already, so remember, if you run out of money, you lose the game. So keep that in mind. Okay, next round of actions and encounters. Good luck. Ebrace is not going to make it play one pipe or two. Many of these actions that you see are things you see on crypto Twitter, like Yeah. So the events are randomly— yeah, I believe so. I haven't played this game enough times to see if there's a pattern. Okay, someone is to lock in their last action. Who's K? Who's K? I think you only locked in the bottom. You need to click on the top button as well. Okay, don't major protocol get hacked. All right, good luck everyone. Shit. Why is everyone losing money? Running a stablecoin business is hard. You got to lose money to make money. Okay, I'm going to move on. Hope you're done reading. Okay, we have a new Market leader. Oh, it seems like the top two are both delta-neutral stablecoins. Okay, but someone's about to run out of money already. Wow. All right, good luck, guys. Remember, it is possible to go bankrupt running a stablecoin. You cannot use your customers' money as your Drown my— Wow, only one of you still has 6 digits in budget. Everyone loves spending money. I can tell many of you are not going to make it. Some of these responses are hilarious, but they are what people actually do. Crazy. These are all based on real What is the 4% benchmark? So that is the market yield that— oh, okay. Yeah, so if— I actually don't know how it impacts like TVL growth, but like, you know, I know that if benchmark yield is higher, then higher yielding stablecoins will grow more than lower yielding stablecoins. All right, 2 people have not locked in their actions. Remember, you have to lock in at the top and at the bottom.

Who is Mark Dickens?

Oh, that's me. All right, central bank digital currency launched. Wow, did anyone get bankrupt already? Yeah, 4 people in one round. I'm close. The best stablecoins are the ones that get close to bankruptcy and then survive. Not to be a racist. Yeah, experience.

Oh, I mean, more times doing pretty well.

I'm just spraying really big. Wow, 4 in 1 turn. Okay, go back.

Leave them lying still 5 minutes.

5 minutes. What's that? Oh really? That happened fast. Hex became number 1 And I don't know where Hex came from.

And I played the total game.

Hex, yeah, same thing. You came out of nowhere. You like weren't even top 5 in the first. You applied to be a manager.

I know how fair play comes to existence.

How many rounds do we have? Uh, 12 rounds. Yeah, so a lot of you lost before the first half of the game. Okay, all right, just 3 more people. Now that there's less people, the round should go faster. All right, you guys get 10 seconds. 8, 7, 6, 5, 4, 3. Who's Harry? Harry. Harry. Okay, I'm out. So, so, you think money? What? I'm the number one. What? 4 people left in the race. Wow, we lost another half of you. Yeah, it's a brutal, brutal game. I mean, in the real stablecoin race, I think it's even more brutal. Yeah, I bet I can name 10 stablecoin projects you guys have never heard of before that are all out of business.

I need to change the name of that coin. Unstable Coin.

Hack's doing pretty well, man. Yeah, healthy budget, active user base. All right, just 4 of you. You guys should take 1 minute or 30 seconds.

I'll keep watching.

Can we watch? Um, I mean, you can watch the screen. I don't know if you can see their actions. Probably not. I'll just watch the screen. You can look over their shoulders. Copycat. Bro, AWS down.

I, I exactly selected that option because I could have worked.

Who built this game? Uh, so there's a company called StableWatch. They basically build stablecoin analytics. No, actually StableWatch. So I have actually never met anyone on the StableWatch team, but I know them.

You know them?

They're my friends. Oh really?

That's why his name is—

I never played this game before. Yeah, I mean, so we have, we have worked with them before, like they've written some articles for us and we've done some like dashboards together, but I've never met their team in person.

Who's cool?

It's me, it's me. Okay. Crime legalized globally, let's go! We didn't make it. Yeah, you didn't make it to the bowl season. It's crying season.

Being part of a survival until—

Yeah, okay, so the 4 of you are still alive.

Most growing like crazy. Nice.

Uh, Mark's running out of money though, getting low. Wu-Tang kind of lagging behind, but hey, sometimes Slow and steady wins the race. Yes, the most money. Oh, thank you. Can we do a short recording of you later?

Ask you a question. Same with Will. Yeah, those guys know you enjoy.

Okay. Should have shaved. I forgot I was going to be in a recording.

Put it on TikTok.

Okay, all right, good luck, good luck.

Yes, I'm concentrating.

Yeah, I don't know what that impacts, honestly. Okay, but it seems like everyone is still, you know, doing pretty well. No one's nearing bankruptcy. TBL numbers are starting to balloon, but we're only halfway. So any— it's the still anybody's game. Anyone can still go bankrupt and anyone can still become number one.

This is the bull market blow right here.

Yeah, this is the real test. The first 6 turns was the tutorial. Sorry to everyone who lost in the tutorial. If it makes you feel better, I also bankrupted the first time I Okay, new high-yield opportunity emerges. Relatively stable, I would say, so far, but HEX has a lot of money to burn Saving for loss. We're starting to see who the USDT and USDC of this cycle are. Okay, traditional markets crash. Uh-oh, nice, man. Wow, starting to feel like Hex has an insurmountable lead, but there's still 4 turns left. Still anyone's game. A lot can change in 4 turns. 4 turns is how long it took for half of you to bust out. So this is why we can't have nice things in dead people's All right, good luck, good luck. Oh, SEC approved stablecoin framework. Wow. Okay, it's just like real life, guys. Any shakeups? No. Winners keep winning. Welcome to the stablecoin game. You can pivot your project. Launch a new Plasma. Yeah. If they made this game today, then it would be about stablecoin chains instead of your very stablecoin project. You're gonna upgrade again? You know, upgrade what? This game? Probably not. I mean, I— okay, I, I think eventually they will, but the last time they did this, they did it for a conference. So yeah, actually maybe because we have Token coming up. Yeah, next week. Yeah. But they also recently raised funding, so I think they have bigger things that they're working on now. We have another CBDC launch. Okay. Market's maturing. Everyone except Wu-Tang is cash rich now. All right, good luck. Second to last turn, make it count. You're not— you can't eat your money, okay? So you, you know, there's not many opportunities left to spend it. If you haven't TGE'd yet, you know, maybe think about it. All right, final stretch. DeFi hack, major market panic. I mean, too big to fail though, honestly. Yeah, HEX is now almost double number 2. Yum, last turn. Make it count. Spend all your money. This is the time to sabotage or destroy the player. Yeah, Monopoly. Wow, Wu-Tang might actually go bankrupt on the last turn. Let's see. Okay, good luck. Quantum computing breaks encryption. All right, turn 12 results. This is, this is it. All right, so we got Hex with a very healthy lead. So what's your secret? How did you—

I know how to run a project in terms of the pressure. That's why I didn't spend any money to the social pressures. Okay, I focused on security. Okay, mobile application And then after, I just focused on the cross-functionality because I want more users.

After, I hired a lobbyist. Okay, so you didn't spend money on marketing in the beginning? Okay, that's the secret. Paying KOLs is a money black hole.

No, I paid Arthur Hayes because he was trying to fund me.

I just shut him down. Alright, so hopefully you guys, you know, learned something or at least enjoyed this. I think I have a package delivery. Alright, anyways, yeah, if you want to try this game on your own, there is single-player mode. Also, if you want to compare how well you did to everyone else. There is a leaderboard as well, so actually, congratulations guys, we are the leaderboard because it seems like no one else has played this game this week, so you're all winners. Um, yeah, I mean, any, uh, final questions, comments about the game or stablecoins or anything else.

I mean, how could someone create a game like this before other platforms, like not just stablecoin platforms?

I mean, so the people that created this game, I mean, obviously they've been in the industry for a while, right? So there's like a lot of humor from inspired by real events that happen on Twitter or, you know, that they hear through like other news channels, right? So if you want to create a game like this, then I think the most important aspect is you have to like really understand, you know, like, okay, yeah, not just the market but also the sentiment, the vibes, the memes, whatever, right? Like there's a lot of hidden references in here if you know where to look. Um, I think the actual mechanics of the game are pretty basic, right? Like if you really tried, you could definitely make a more sophisticated simulator game. But the main goal of this game is to just, you know, have like a fun experience where people can, you know, think about what are the different aspects that you might encounter or have to, you know, decide on when you do a stablecoin. And the first decision that you made is probably the most important one actually, right? Like what is the difference differentiator between your stablecoin and what is the trade-off that users have to make when they use your stablecoin, right?

So, all right, let's give a round of applause.