CoinDesk is preparing for the invest: ethereum economy virtual event on Oct. 14 with a special series of newsletters focused on Ethereum’s past, present and future. Every day until the event the team behind Blockchain Bites will dive into an aspect of Ethereum that excites or confuses us.
The Top Shelf news you subscribed to is down below.
Now, a few words from CoinDesk tech reporter Colin Harper.
Stablecoin use on DeFi applications has exploded in 2020.
Approximately $20 billion of crypto dollars are floating around, and a few billion of these have found their way into the ether by way of yield farming and lending. Even Ethereum’s flagship DeFi application, MakerDAO, is flooded with USDC, making the stablecoin the largest collateral for Maker’s DAI stablecoin.
That’s right, a stablecoin is the primary collateral for another stablecoin. That’s how deep crypto dollars go into DeFi’s liquidity. Outside of Maker, DAI, USDC, TUSD and USDT are the most popular pools on Aave, with a collective market size of $650 million. Uniswap has roughly $780 million in USDC, USDT and DAI staked in market pools. On Compound, DAI and USDC are the first and third most popular markets with a staggering $1.4 billion locked.
As crypto dollars liquidity floods DeFi markets, will these tokens, which are centrally issued, threaten these application’s presumed decentralization? With bitcoin derivatives exchange BitMEX facing legal actions from U.S. regulators, questions have floated whether exchanges like Uniswap should worry about being targeted next.
Most DeFi proponents argue the “decentralized nature” of the exchange will excuse it from scrutiny. While the act of trading these assets may be considered decentralized, the assets themselves (namely, stablecoins) are not always decentralized. USDC, USDT, TUSD and PAX can be frozen and revoked by their central issuers.
If regulators wanted to come for DeFi, one weak point could be the stablecoin providers. This would even have implications for DAI, Ethereum’s so-called decentralized stablecoin, considering the bulk of its collateral comes from USDC.
Crypto dollars are obviously beneficial to DeFi’s market structure for the price stability they provide. This is largely why they have taken over as the dominant source of liquidity (even over ETH) in most markets.
But they are inherently centralized entities, and it remains to be seen how regulators are going to approach their use in DeFi lending and DeFi markets in general. This finally raises the question: Do stablecoins threaten DeFi’s perceived decentralization?
At CoinDesk’s virtual invest: ethereum economy program on Oct. 14, Circle CEO Jeremy Allaire and Aave Finance founder Stani Kulechov will discuss how integral stablecoins have become for DeFi in their talk “Stablecoins, Hyper-Collateralization and the DeFi Economy.”
Looking beyond this question, stablecoin use in yield farming and elsewhere has contributed to Ethereum’s skyrocketing fees. MakerDAO founder Rune Christensen and Near protocol co-founder Illia Polosukhin will discuss DeFi’s impact on Ethereum in their talk “The Fees are Too Damn High: DeFi Pushes Ethereum To its Limit.”
One may ask, how stable is a crypto ecosystem built atop stablecoins?
Frontends: Winning the Race for the DeFi User
The emergence of new infrastructure such as automated market makers, portfolio managers and aggregation tools has kick-started an arms race for end users. We explore how these products are lowering barriers to entry in the Ethereum economy, where and how value will accrue with these platforms and the growing migration of centralized exchanges looking to get in on the act.
Join Dragonfly Capital Partners’ Haseeb Qureshi, Huobi’s Ciara Sun and Zapper.fi’s Nodar Janashia from 5:30 – 6:00 p.m. ET, Oct. 14, for the livestream.
Ethereum’s highly anticipated 2.0 upgrade is poised to bring the network ever closer to fulfilling its original vision to be a “world computer” that plays host to a parallel, decentralized financial system.