⚖️ The Stablecoin Trilemma

We learned from the rise and fall of past stablecoins

A stable (and decentralized) digital currency has immense potential to ease the global transfer of value — and bring fairness to parts of the world that don’t have access to non-volatile stores of value. It’s imperative we continue moving the stablecoin sector forward.

If you’ve heard of the blockchain trilemma, coined by Vitalik, this will sound familiar. Stablecoins seek to optimize three categories:

  • Stability

  • Decentralization

  • Scalability

Let’s take a look at a few existing (and past) stables:

$DAI is a widely adopted decentralized, over-collateralized stablecoin created by Maker DAO. It’s stable and (somewhat) decentralized, but difficult to scale due to its over-collateralization model. It’s not capital efficient.

$USDC is the second largest dollar-backed stablecoin (by market cap). It’s stable and scalable, but far from decentralized. Do we really want DeFi’s primary medium of exchange dependent on the USD? Our vote is no…

$UST was an algorithmic stablecoin that took over the industry in 2021 and early 2022. It was hyper-scalable and fairly decentralized (founding team did have asymmetric influence), BUT it was obviously not stable. $UST was purely algorithmic, and death-spiraled to zero once volatility (and massive sell pressure) struck.

The takeaway is simple: we’re yet to see a stablecoin that can solve the trilemma and reach the masses… until $USDH.

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