Competitive Landscape

The stablecoin landscape has evolved substantially in the 3 years since the launch of Liquity V1. While MakerDAO and its DAI stablecoin have drifted away from using only decentralized collateral by incorporating centralized stablecoins and real-world assets as backing, newcomers and established protocols alike have entered the scene with their own stablecoins.

In 2023, Curve Finance introduced crvUSD, a stablecoin managed by algorithmic borrow rates and an autonomous peg-keeping mechanism, using Curve pools as collateral. Despite innovating on multiple fronts including soft-liquidations of borrowing positions, crvUSD doesn’t have an efficient interest rate market between borrowers and stablecoin holders, but relies on manual incentives to obtain liquidity. Curve has experienced extremely volatile borrow rates, exceeding 50% at times.

Following a more traditional model, Aave’s GHO stablecoin can be borrowed against a host of collateral assets with the terms being subject to human governance. After an initial period of peg issues, Aave introduced a yield source for GHO depositors, eventually stabilizing its price. Ethena is pursuing the idea of delta-neutral stablecoins by partnering with centralized exchanges offering perpetual futures and requiring custodians to manage the collateral. Other entrants in the centralized stablecoin space like Mountain have introduced yield-bearing stablecoins, kicking back the yield earned by their reserves to stablecoin holders. It is yet to be seen how that will affect established actors such as Circle and Tether in the long run.

In contrast to most of its competitors, BOLD is a resilient stablecoin by design:

• only backed by crypto assets (no real world assets or custody by centralized players)

• not subject to collateral changes and protocol upgrades (immutable)

• directly redeemable (always convertible in a fast and liquid way)

A successful stablecoin should not only be unstoppable and decentralized, but flexible enough to adapt to changing market environments like rising or falling interest rates. Furthermore, it should have utility as a store of value and unit of exchange. A stablecoin can only thrive if there’s sufficient demand for holding and transacting with it. In times of positive interest rates, this may imply a need for a continuous yield source for the stablecoin.

Existing stablecoins face challenges with regard to the efficiency, decentralization and/or sustainability of their yield sources. To date no existing solution has established an efficient interest-rate market between borrowers and stablecoin holders. Current protocols either rely on slow and potentially misaligned human governance to adjust interest rates (DAI, GHO), or they don’t have a targeted way of using interest payments to drive demand for their stablecoin (crvUSD). Liquity V2 will change that. It is designed to strike an optimal balance between borrowers and stability seekers by flexibly adapting to the macroeconomic situation in a fully market-driven way.

Management and Distribution of Borrowing Interest in Different Protocols: