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I wrote an article recently named Stablecoins, DeFi and Regulation which covered… well… Stablecoins, DeFi and regulation. The idea of the article was to assess the damage that had been caused in the past few months, where we went wrong and how we fix it going forward as an industry.
It is abundantly clear that the future of stablecoins lies in 1:1 or over collateralised and the algorithmic dream (in its current state) is miles off the pace. The other issue for many retail investors and market participants is that they are a little wary of centralised stablecoin issuers and some reasoning behind that.
Circle and Tether haven’t exactly covered themselves in glory with the amount of blacklisting of wallets that have happened over the years. The idea that funds can and will be frozen is no better than the current banking system we are trying to improve upon.
Until recently the transparency of these projects hasn’t exactly been great either. More frequent and even on-chain records of holdings via oracle solutions could be a better step forward for such companies to increase users’ trust around using their stablecoin products.
On the other hand, I think the industry, particularly people in the community space, will like to hail decentralised (whatever that means) stablecoin products as the gold standard. The same people flock to USDC and USDT amid a downturn in the market. The things that people say in public and how they act in private are completely different.
Anyway, there is room for new emerging stablecoin projects that are 1:1 backed to learn from the mistakes of those that come before them. Stablecoins are still the biggest opportunity in this space, I don’t care what anyone says. Yes, retail doesn’t necessarily get to speculate on the success of a centralised stablecoin product in the same way they invest in the rest of the crypto space.
I think we will probably begin to see some large stablecoin issuers go public soon enough, Circle has already delayed the process twice, already… Saying that SPACs haven’t exactly been a worthwhile investment particularly if Lord Chamath has anything to do with them.
I don’t think the opportunity is necessarily in USD-denominated stables either. Other top currencies are yet to really be explored other than in the synthetic-stables world. Handle. Fi has a few great products that are extremely under the radar but fully 1:1 back products are beginning to emerge such as GYEN, GBPT and EUROC, to name a few.
The opportunities for investors, funds and retail users with these product offerings are going to slowly emerge as the liquidity and listings increase across the crypto and DeFi landscape.
For example; if a fund is sat primarily in a USD-denominated portfolio and the YEN is predicted to outperform over the short to medium term we may see treasuries denominating and holding a Yen-based Stablecoin over that time. Obviously, this is all hypothetical for now but those small incremental % gains over that time could be a low-risk portfolio rebalancing strategy that on-chain funds could utilise to outperform.
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The liquidity also needs to be there to do so. This is kind of a chicken and egg situation but naturally, over time these flywheels begin to take effect. This can also open the door to more exotic LP strategies i.e. low(er) impermanent loss (IL) stablecoin LPs which tend to have less volatility than speculative assets paired together. I say “low(er)” given the past few months volatility in FX has been relatively high comparatively.
We have been spending a lot of time talking to projects in this space that are coming forward with new stablecoin products that are looking to learn from the mistakes that came before them and also start the new post-USD stablecoin era. GMO-Trust has a Yen offering (GYEN) that is about to come on-chain with a good amount of liquidity.
Who is GMO-Trust?
GMO Trust is a subsidiary of GMO Internet which is a HUGE multinational conglomerate with over $2.13bn in revenue in 2021. GMO Trust released the first fully backed Yen Stablecoin GYEN following New York Department of Financial Services approval in late December 2020.
So what we have here is great backing by a titan of the financial industry followed by regulatory approval where it matters.
After speaking with the team on numerous occasions they are determined to ensure deep liquidity for GYEN makes its way on-chain with the idea that Curve and L2s will play a big part in the stablecoins adoption, which I believe is the right move.
What are GYEN and ZUSD?
Both are fully backed 1:1 stablecoin products that can be redeemed through the GMO Trust off-ramp. The team is looking to partner with institutions to increase the liquidity of both assets with a strong focus on the GYEN product. They have a full KYC/AML sign-up process to convert fiat to either product. Their focus over the next 12-18 months will be on increasing utility and awareness of their coins on-chain and tapping into the DeFi infrastructure.
It is really fascinating to me to see alternative fiat-backed stables come into the market and if people believe that FX infrastructure does not belong on-chain then ask yourself why Tether and Circle have both released GBPT and EUROC, respectively.
With the increase in scalability and transactional throughput, we will increasingly see more FX-minded trades occur on-chain, liquidity permitting. We have a while to go before we can begin to see the types of volumes that the traditional markets see concerning forex, which often trades over $6 trillion in volume per day…
So, yeah when you look at it the opportunity for stablecoin providers particularly with the right backing and experience in these waters is certainly there. Retail and consumers can almost certainly begin to take advantage of this by providing liquidity on-chain wherever liquidity pools for such assets are kept. It would certainly be nice to be exposed to that kind of volume as an LP one day, albeit might take a decade or more to achieve that potential. I do believe it is coming.
I believe if GMO Trust can get its transparency to a high standard in comparison to the rest of the market with regards to asset-backing, then it can almost certainly cut through to mainstream adoption.
As I mentioned in the past article I quite like these short pieces surrounding topics that are really interesting to me. Stablecoins might not be the most appealing asset to retail investors for obvious reasons but when new products come on to the market they provide an opportunity for new strategies whether that be treasury management, settlement, FX and semi-stable liquidity provision.
GMO Trust has got something here particularly with being first movers with regards to their Yen product. I’ll be interested to see how this and other fiat-backed currencies integrate into the crypto and DeFi landscape and see what additional uses they can bring to this space.
Again we are in close contact with the GMO Trust team so if you are looking for any further information or looking for an introduction just shoot me a message and I can set that up with you.
Final note: if anyone here is interested in speaking with GMO-Trust regarding their GYEN and ZUSD products just drop me a message and we can put you in touch with the right people. My details are below:
blocmates links –
Email – [email protected]
Personal telegram – @blocmates
Personal Discord – blocmates#0001
Discord Community – https://discord.gg/blocmates
Telegram – https://t.me/+UtYbMzXmlhb6R4Xd