In many emerging countries, stablecoins are rapidly replacing cash and bank accounts as the most reliable gateway to the "digital dollar." However, behind this global adoption wave lie two key, often overlooked, emerging trends that will profoundly impact the future stablecoin landscape. First, decentralization is not merely a concept, but a form of security. In countries where access to dollars is difficult and financial systems are fragile, people are not truly concerned about price volatility, but rather whether their money will be frozen, confiscated, or disappear without a trace. While centralized stablecoins like USDT and USDC are powerful, they still rely on single-point trust. In contrast, decentralized stablecoins based on on-chain mechanisms offer a more "systemic security" through transparency and non-intervention. Second, the fragmentation of stablecoin liquidity will intensify further. When different ecosystems, protocols, and collateral logics are all issuing their own stablecoins—even incorporating stablecoins into the underlying protocol design to mitigate value outflows—we will no longer face "USDT vs USDC," but rather increasingly complex and fragmented asset pools. Cross-chain asset packaging, embedded stablecoins (such as USDm and USDH), and new decentralized models will all drive this fragmentation trend further. This means that the world of stablecoins will not only be safer but also more complex; not only more widespread but also more decentralized. This discussion unfolds against this backdrop, exploring an increasingly crucial question: As stablecoins become globalized and diversified, what kind of infrastructure and mechanisms do we need to truly make them an entry point for inclusive finance? Stablecoins are becoming an entry point for the "digital dollar" in emerging countries. Leemo: Welcome to this panel discussion! Let me first introduce today's guests. Nico is the co-founder of Velocity Labs, an open development and startup studio focused on DeFi and infrastructure building within the Polkadot ecosystem. Before founding Velocity, he served as the head of DeFi at Parity. Next is Ben, the COO of Hydration. Hydration is a core DeFi Rollup on Polkadot and has launched its own decentralized stablecoin, HOLLAR, whose design mechanism is inspired by Aave's GHO. Let me get straight to the point. I lived in Argentina for a while and witnessed firsthand how actively many Latin American countries embraced Web3. In Argentina, QR code payments are accepted almost everywhere, and users primarily top up their accounts with stablecoins. Do you think this stablecoin adoption model could be replicated in other regions? Nico: Absolutely. A key reason for the rapid adoption of stablecoins in Argentina is the extreme macroeconomic environment—such as hyperinflation and difficulty in obtaining US dollars—which directly fueled demand for digital dollars. However, if we broaden our perspective to other regions, whether in the Americas, Africa, or the Asia-Pacific, many countries face similar problems, just not to the same extreme degree as Argentina. Taking my home country, Colombia, as an example: We don't have hyperinflation; our economy is at a "normal level." However, widespread poverty, long-term currency devaluation, and difficulty in obtaining US dollars remain the norm. Under these circumstances, people naturally seek alternatives to cash or physical US dollars, and stablecoins perfectly fill this gap. Data also shows that while Argentina is indeed one of the countries with the highest adoption rates, other countries are rapidly following suit, continuously integrating stablecoins, or "digital dollars," into daily financial life. Ben: Here (in Latin America), the acceptance of stablecoins stands in stark contrast to that in the UK. In the UK, you often see news about stablecoin limits and tightened regulations, while in regions like Latin America, the situation is completely opposite—demand is stronger and the barriers to use are lower, so adoption has been accelerating. Even if regulation may affect the pace in the future, in terms of "convenience" alone, it has already injected strong momentum into the development of stablecoins in these countries. Nico: I'd like to add something, which will be clearer if viewed through a mental model. I often use the development logic of FinTech to predict the future popularization path of stablecoins. The growth of stablecoins in these countries is very similar to the "leapfrog development" of FinTech in some countries in the past. Taking China as an example, before its rapid economic growth, its financial infrastructure was not well-developed. However, instead of building step by step along the traditional banking system, they leaped directly into the digital finance era—the rapid popularization of WeChat Pay and Alipay made "everything can be financialized" a reality and built one of the world's most advanced digital financial ecosystems. I believe stablecoins will follow a similar path. Whether it's Argentina, Colombia, or many African countries, their traditional financial infrastructure is relatively underdeveloped, but as long as there is internet access, various financial services can be directly overlaid on the blockchain. Of course, as I mentioned in my speech, we still have a lot of work to do in terms of user experience, but judging from the trend, stablecoins in these regions will develop along this path in the future. Decentralization is not just a concept, but a form of security. Leemo: Very interesting. In countries like Argentina and Colombia, locals often choose USD stablecoins to hedge against currency devaluation. So, returning to stablecoins themselves, how do you view the risks of different types of stablecoins? For example, stablecoins like USDT and USDC, backed by traditional financial assets (such as government bonds), have completely different risk structures than stablecoins like HOLLAR, which are over-collateralized with crypto assets. Which type do you think is more likely to be widely adopted in the future? Of course, USDT and USDC are still the mainstream now, but could this pattern bring problems? From some perspectives, are crypto-collateralized stablecoins actually better? Why don't you talk about it first, Ben—why did you choose to build HOLLAR instead of relying directly on USDT? Ben: Every stablecoin has its use cases; the key is the user's needs. USDT and USDC are the absolute protagonists in the industry, with a stable market position, abundant deposit and withdrawal channels, and are backed by traditional assets such as US Treasury bonds. Their core logic is "trust in the issuer": users believe that when needed, one USDT/USDC can be exchanged for one US dollar. However, in reality, very few entities actually have the qualifications to exchange, making it very difficult for ordinary users to make large deposits and withdrawals. Furthermore, these stablecoins have a fundamental problem: they are centralized. Issuers can freeze user assets, a risk that is unacceptable to many users. In contrast, stablecoins like HOLLAR and GHO employ an on-chain, over-collateralized model of crypto assets. Indeed, because collateralized assets are typically highly volatile, maintaining the peg requires a more complex mechanism. However, its advantages are also very clear: The entire operating mechanism is open and transparent on the blockchain. The entire process is auditable, and anyone can verify its security. It doesn't rely on the credit of any particular institution, but rather on the code and game theory mechanism. In other words, you trust not the issuer, but the smart contract and the rules themselves. Nico: We may have only seen the tip of the iceberg of stablecoin potential. I believe stablecoins are one of the earliest and most deeply explored sectors in the crypto industry, thanks to their relatively mature adoption. But even so, I still feel we've only scratched the surface. I often recall my experience working on a decentralized stablecoin. That was the period when decentralized stablecoins received the most attention, and everyone understood the core value of this product: attempting to securely decouple currencies from nations. Of course, these products have experienced numerous crises. Although various mechanisms have been continuously improved since then, the reality is that centralized stablecoins have gained a larger market share. Because of this, the market has, to some extent, overlooked the value of decentralized stablecoins. However, I firmly believe that decentralization is not merely a concept, but a form of security. While USDT and USDC possess on-chain technical security, they still face centralized single-point-of-failure risks; conversely, decentralized stablecoins, by eliminating human control points, offer a completely different security model in terms of solvency and system resilience. Therefore, I look forward not only to seeing HOLLAR widely used in the Polkadot ecosystem, but also to the continued evolution of a more robust and innovative mechanism in the entire decentralized stablecoin field, ultimately leading to large-scale adoption of such products. The fragmentation of stablecoin liquidity will further intensify. Leemo: I completely agree. You mentioned earlier that there are still many pain points in user experience. Currently, there are both centralized stablecoins and various decentralized stablecoins on the market; within the Polkadot ecosystem, there may be two types of decentralized stablecoins and two types of centralized stablecoins. And when users transfer these stablecoins across chains to other ecosystems, packaged versions appear, and the liquidity of these packaged assets is often far inferior to the native versions. In this situation, stablecoins will experience severe liquidity fragmentation both within and outside the ecosystem. What do you think should be done to solve this? Are there any directions we can try? Nico: To solve this problem, we must start with the user experience. We are already seeing this trend in some products: product teams should proactively "swallow" the underlying complexity so that users don't have to deal with a chaotic asset system. The first step is to redefine the concept. For example, the "Digital Dollar" I mentioned earlier is a kind of UX improvement. For many users, the term "stablecoin" easily conjures images of scam coins or game currency, so "digital dollar" makes it easier for them to understand—it's essentially the US dollar used in the digital world. The second step is to abstract the underlying asset structure. Users might hold USDT on the Polygon network or USDC on Polkadot Hub, but most people don't need to know these differences. They only really care about three things: Can it maintain its dollar value? Can it be used for payments? Can it be exchanged for cash?
If these three points are handled smoothly, the user experience will be significantly improved.
As for the underlying infrastructure, there is still a lot of work to be done. For example, Circle's cross-chain transfer protocol CCTP, and USDT's ongoing zero-knowledge proof scheme, are both striving to improve liquidity barriers between different ecosystems, but this is just the beginning, and there is still a long way to go.
Ben: Moreover, I think liquidity fragmentation will further intensify.
Everyone now realizes that stablecoins have become an indispensable part of the underlying design of protocols.
For the past few years, USDT and USDC have practically enjoyed a "passive income" effect—issuing hundreds of billions in supply while monopolizing all the yields from government bonds. Now, new projects like MegaEth are starting to fight back. They plan to embed their own USDm stablecoin directly into the protocol's underlying layer. Although it remains a centralized stablecoin backed by government bonds, the yields will flow entirely back to the protocol, not to the external issuer. Hyperliquid's USDH is similar, backed by government bonds and using the yields to buy back protocol tokens. In other words, more and more people are realizing that "stablecoin yields" should return to the protocol and users, rather than flowing to centralized issuers. Therefore, we will see more and more similar designs in the future, and the application layer's task is to continue to "strip users of complexity." Additionally, I've recently seen the term "digital dollar" in some applications, and it is indeed a very clever and user-friendly name. At Hydration, we are exploring a further direction: on-chain FX. By building stablecoin pools with floating pegs, we may launch on-chain stablecoins for the Euro, British Pound, or other currencies in the future, allowing users to easily exchange currencies across currencies, thereby extending into more application scenarios. Of course, for these visions to come to fruition, a more robust deposit and withdrawal infrastructure is essential. The QR code payment you just mentioned (such as Peanut's solution) certainly has great potential, and I also believe it's a development direction worth paying attention to. Audience Question: Are there any stablecoins other than those pegged to the US dollar? Ben: Indeed, there have been many attempts at non-USD-pegged stablecoins in the past, with RAI being a typical example. But I think the biggest challenge is—frankly, I haven't fully figured it out myself—that most users find it difficult to adapt to a monetary system that isn't based on a 1-based valuation. For the vast majority of users, when it comes to "stable assets," the US dollar remains the most intuitive and understandable unit of account. RAI tried to break free from its dependence on the dollar back then, but adoption has never really taken off. I've heard they're even planning to launch a new version that's re-pegged to the dollar, which to some extent illustrates that the dollar is deeply entrenched as the global consensus pricing symbol. This situation may change in the future, but it's unlikely to be shaken in the short term. Some might say gold is more stable, but gold prices have been rising unilaterally for the past few months, and it's not entirely stable either. I believe that people will continue to explore non-dollar-pegged stablecoins in the future, but breaking through the public's inertia is indeed very difficult. Nico: Let me add something. You just mentioned that "people are gradually losing trust in fiat currency," and I think this is a long-term trend that may take decades to fully evolve. But we are indeed moving in that direction now. At least in the crypto industry, we are trying to redefine money from a technological perspective—reinventing, redesigning, and rethinking what money should be. However, the reality is that the mainstream world still uses fiat currencies, so I believe a "gradual path" should be taken: First, address the immediate practical problems: making the global fiat currency system more efficient and modern (e.g., the on-chain representation of the US dollar). Then, consider the more distant future: must currency be guaranteed by a nation-state? Can it be backed by a basket of assets? Or should a more innovative model be adopted? We must take the first step steadily before moving on to the second; that's my view. Audience Question: How does HOLLAR ensure stability? Ben: HOLLAR is a multi-collateral stablecoin, which means the mechanism itself is more complex because the collateral includes not only DOT, but also BTC, ETH, other stablecoins, and DOT liquidity-collateralized derivatives, each with different market prices. HOLLAR's mechanism is based on AAVE V3's GHO model: the system determines how much HOLLAR you can borrow based on the market value of the collateral assets. When the health of a position falls below a certain threshold, it indicates that the value of the collateral is insufficient, triggering liquidation and using your collateral to repay the debt. Within the protocol, 1 HOLLAR is always equal to 1 HOLLAR, but the dollar value of the collateral fluctuates, thus requiring an economic mechanism to maintain the peg. One mechanism is: When you lend out HOLLAR, and the market price of HOLLAR falls below $1, you can buy back HOLLAR at a price below $1 to pay off your debt, thus creating arbitrage and bringing the market price back to the anchor level. The system relies on on-chain and off-chain price oracles to determine the dollar value of collateral assets. For example, if the price of Bitcoin is $95,000 (excluding DOT), then if a certain type of collateral asset experiences a sharp price drop that results in insufficient position value, it will be automatically liquidated to ensure that all HOLLARs in the system are backed by sufficient collateral. Original video: https://www.youtube.com/watch?v=i77VQ9j95Fc&t=8s
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