What is a Stablecoin Maximalist?
Stablecoin maximalism is a concept popularized within the cryptocurrency sector, particularly within the Decentralized Finance (DeFi) community. The term was highlighted during Sam Kazemian’s presentation at ETHDenver, where he introduced the idea that most, if not all, crypto protocols will converge towards becoming stablecoin issuers in the long term, or stablecoins will become foundational to their operations. Kazemian and the Frax core team, who uphold this belief, believe this idea is a natural evolution of the DeFi Trinity concept introduced by Frax in 2022.
Definition
A “stablecoin maximalist” is a person or entity that believes in the fundamental importance of stablecoins within the DeFi ecosystem. They believe that regardless of a protocol’s function – be it a bridge, derivatives market, or other – a stablecoin will eventually become essential to its existence. This belief also encompasses the view that all DeFi protocols will eventually issue their own stablecoins or incorporate existing ones into their platforms.
Stablecoin Structure
According to the stablecoin maximalist worldview, all stablecoins share a common structure consisting of a two-part mechanism:
- Risk-Free Yield (RFY): This is the revenue generated by the assets backing the stablecoin in the lowest risk venue within the system, based on its reference peg.
- Swap Facility: This is where a stablecoin can be redeemed for its reference peg.
Both aspects are crucial for maintaining the social contract between stablecoin issuers and stablecoin holders. This contract remains intact as long as the stablecoin can be redeemed for its reference peg in the swap facility.
Examples
Examples of stablecoins following this structure include USDC, stETH, frxETH, bridged DAI, and FRAX.
- Circle’s USDC: Its RFY comes from Treasury bills (T-Bills), and the swap facility is cash.
- Lido’s stETH: The RFY comes from PoS validators, and the swap facility is the stETH-ETH Curve Pool via $LDO incentives.
- Frax’s frxETH: Similar to stETH, its RFY comes from PoS validators, but the swap facility is the frxETH-ETH Curve Pool via its automated market operator (AMO).
Monetary Premium
The success of a stablecoin can be measured by its monetary premium, which is the demand for an issuer’s stablecoin to be held purely for its usefulness without any expectation of an interest rate, payment of incentives, or other utility from the issuer.
Stablecoin Evolution
The evolution of stablecoins can be segmented into three eras:
1. The first era included widely accepted dollar-pegged stablecoins such as Tether, USDC, FRAX, and DAI.
2. The second era consisted of established DeFi primitives like AMMs, lending markets, and veWrappers.
3. The third era we are currently in includes liquid staking derivatives, bridges, and other protocol-derived assets like GMX’s potential future stablecoin.
Frax Finance and Stablecoin Maximalism
Frax Finance is a protocol that embodies the principle of stablecoin maximalism. It issues innovative decentralized stablecoins and builds subprotocols to support them. The ultimate goal of Frax Finance, following the principles of stablecoin maximalism, is to achieve hundreds of billions, if not trillions, of dollars in total value locked (TVL) within its family of stablecoins over the next 5-10 years.
The concept of stablecoin maximalism emphasizes the increasing importance of stablecoins in the DeFi ecosystem. It suggests a future where all protocols will incorporate stablecoins into their structure, either by issuing their own or adopting existing ones. As a result, whether directly or indirectly, everything within the DeFi space would be linked to stablecoins.