※Added on 04/12/2021
This is an overview of v0 of Soteria. Once derivatives dex starts accepting BTC or SOL as collateral, we will not custody funds and users will be able to issue/redeem USDS trustlessly.
There are a total of 46 stablecoins out there based on Coingecko. Stablecoins having been growing at a fast pace since its inception, but it has grown especially since 2020. The current market capitalization of stablecoins is close to $60 billion USD and has grown by close to 900% compared to a year ago.
In this post we will analyze some of the stablecoins and compare its features. Then we will also look into how Soteria does compared to other stablecoins.
Most stablecoins can be categorized into 3 types, fiat-backed stablecoins, cryptocurrency collateralized stablecoins, and algorithmic stablecoins. The most well known fiat-backed stablecoins are USDT and USDC. These stablecoins are backed 100% by fiat and users can issue/redeem stablecoins by sending fiat through bank transfers. For cryptocurrency collateralized stablecoins, DAI is the market leader. DAI is a stablecoin that is over-collateralized by other cryptocurrencies such as ETH and USDC. Algorithmic stablecoins are a new concept and tries to stabilize its price based on a preset algorithm. The most popular algorithmic stablecoin is Empty Set Dollar (ESD).
By looking at the table below, you can see how they differ in features. We took a look at the features that most people value and evaluated the stablecoins according to those values. Stablecoin users can choose which stablecoin to use based on what they value the most.
We analyzed USDT, USDC, BUSD, DAI, AMPL, ESD based on Liquidity, Decentralization, Price Stability, Regulatory Risk, and Return.
Liquidity is the ability to buy and sell the asset without moving the price. Stablecoins with a lot of trading volumes and deep order books can be considered to have a lot of liquidity. On the other hand, if the stablecoin does not have much trading volume or depth in order book, it does not have much liquidity and may make it difficult to trade without moving the price. Currently, the stablecoin with the most liquidity is USDT.
Decentralization is how distributed the system is and whether it has a single point of failure. Regulators and other government agencies can more easily attack stablecoins with a single point of failure. The more distributed the stablecoin is, the more difficult it is to censor the operators and cease conversion between the stablecoin and the underlying asset. Decentralization is hard to measure because there is not metric that everyone agrees measures decentralization. But most people would agree that fiat-backed stablecoins have single point of failure whereas cryptocurrency collateralized stablecoins and algorithmic stablecoins are more decentralized.
Stablecoins that have low volatility can be said to be stable in price. If the stablecoin has a high volatility and is not close to $1 USD at all times, you risk losing your investment. It can be observed from empirical data that the more decentralized the stablecoin, the more volatile it is. Here are 2 charts that shows the price of USDC and ESD.
This is related to the concept of decentralization but is also dependent on how the stablecoin operator decides to interact with regulators. For example, USDC is much more heavily regulated than USDT, which makes USDC less likely to be shutdown by regulators compared to USDT.
Most stablecoins are pegged to $1 USD and does not have any returns. Since stablecoins have some risk, such as price fluctuations or regulatory risk, users of stablecoins should be compensated for that risk. One way to compensate users is for fiat-backed stablecoin like USDT and USDC to pay out the interest that they receive for storing usd in bank accounts. This can be approximated by a 1yr us treasury yield which is currently 0.08%.
If you want to minimize the risk of price fluctuations and regulatory risk, USDC is your best bet. On the other hand, if you are a high volume trader and trade size, then USDT might be best because it has the most liquidity and trading volume. DAI might be best for traders who prefer a decentralized stablecoin and use DeFi platforms.
What about algorithmic stablecoins? Algorithmic stablecoin is a new concept and is risky to use for most people. If you take a look at the table, you will notice that AMPL and ESD is trading at a price substantially below $1 USD. Algorithmic stablecoins are very volatile, which you can infer by looking at the ESD chart above.
What is Soteria?
Soteria will issue USDS, which is a USD stablecoin backed 100% by bitcoin. We use perpetual swaps and futures to hedge the BTC/USD price fluctuations and create a delta-neutral position. As a result users can always issue/redeem USDS for $1 USD. For a more detailed explanation, check the blog post and FAQ on our website.
So how does Soteria fit into the stablecoin category. Let’s take a look at the table below.
You can see that Soteria is very different from other stablecoins in that it has a return. A native interest that it pays out to users of the stablecoin. So if you want a stablecoin that is stable in value and also has a return, Soteria is the stablecoin that fits your needs.
USDS will be released soon as a beta version. We expect users to receive interest payments at a rate of 15% APY initially.
There are many stablecoins and all of them are different in each way. All stablecoins offer something unique but each of them come with tradeoffs. Users should think about which characteristics they value most in order to choose the stablecoin that best fits their needs.