The end of US dollar seigniorage and the super cycle of stablecoins

Source: Zuoye Waiboshan

1. Non-US debt-based YBS native income, such as more pure on-chain assets, such as BTC/ETH/SOL pledge forms;

2. YBS "Lego" combination, Pendle is just the beginning, more DeFi protocols are needed to support YBS until the emergence of USDT on the chain;

3. Payment products, there is no technical difficulty, interest-bearing is also easy to acquire customers, but the main difficulty lies in compliance and business scale expansion. Even for USDT/USDC, payment also assumes the role of "middleware" in the background clearing, and is less directly used as a transaction medium

100 Stocks, bonds and currencies fell in a triple kill within a day, and the fiat currency order is accelerating its disintegration.

The 2008 financial crisis gave birth to the earliest believers of Bitcoin. The "suicide" of the fiat currency system in 2025 will also promote the growth of stablecoins on the chain, especially non-US dollar, non-full reserve interest-bearing stablecoins (YBS, Yield-Bearing Stablecoins).

However, non-full reserve stablecoins are still in theoretical conception. The aftermath of the collapse of Luna-UST in 2022 is still there, but under the urging of capital efficiency, partial reserve stablecoins will certainly become the mainstream of the market.

Non-US dollar stablecoins are still in the trial stage, and the global currency status of the US dollar is still widely recognized. In order to maintain industrial capacity and employment, the RMB will not take the initiative to internationalize on a large scale, and the replacement of the US dollar will be a very long process.

Based on the above two points, this article mainly examines the latest stage of existing stablecoins, namely YBS The overall appearance of the stable currency system based on the US dollar and sufficient reserves, which contains the basic appearance of the post-dollar and non-sufficient reserve stable currency.

The internal manifestation of seigniorage is inflation, which is commonly known as internal debt is not debt, and the external manifestation is the US dollar tidal cycle.

Trump abandons the hegemony of the US dollar

From a technical point of view, the issuance of the US dollar is a counter-attack between the Federal Reserve and the Treasury Department, and then uses the credit relationship of commercial banks to amplify the money multiplier, creating different statistical levels of currency circulation such as M0/M1/M2/M3...

Under this issuance model, US debt (T-Bills, T-Notes, T-Bonds) is divided into long and short, maintaining the slow inflation of the US dollar and the short-term currency stability. The interest rate of US debt has become the pricing basis of the entire financial world. The US dollar has become the world currency, at the cost of the US external deficit and the dependence of various countries on the US dollar.

The cost has always been two-way. The only product of the United States is actually the dollar itself, and countries around the world need to obtain dollars and realize the purchasing power of dollars.

The purchasing power of the dollar will depreciate in the long term, regardless of Trump's will, and countries must obtain dollars to minimize transaction intermediary costs. Barter is not unfeasible, but it is more cost-effective to use dollars directly.

The hard-earned dollars must be spent quickly for production or financial arbitrage to maintain their purchasing power and maintain the competitiveness of exports to the United States in the next stage.

Now this cycle is being destroyed by Trump's Schrodinger-style tariff system. Trump is increasing tariffs and forcing Powell to cut interest rates. Countries do not want to continue holding dollars and have fled the U.S. bond market, and the dollar/U.S. bond has become a risky asset.

The slow inflation of the US dollar is the harvest of seigniorage from various countries. Only when countries must hold and partially invest in US debt can the damage to the US dollar itself be reduced.

Assume the following scenario:

• Alice is a textile worker who works hard in a sweatshop and earns $1,000 in cash;

• Bob is a U.S. bond salesman, Alice invests $100/200/200 in short-, medium- and long-term U.S. bonds, and invests the remaining $500 in expanded reproduction;

• Bob uses the bonds purchased by Alice as collateral, adds a leverage of 100x, and borrows $50,000 from Cindy in the bank;

• Bob spends $25,000 to buy real estate, $20,000 to buy Mag7 stock, and the remaining $5,000 to buy Alice's new bag.

In the above cycle, Alice's motivation is to exchange labor for dollars and use reproduction and US bonds to resist depreciation. Bob's motivation is to recover dollars and magnify the asset value of US bonds. Cindy's motivation is to collect risk-free US bonds and earn commissions.

The danger lies in two points. If Alice invests all $1,000 in US bonds, Bob and Cindy will have no clothes to wear, and $500,000 cannot be exchanged for a piece of bread; secondly, the US bonds in Bob's hands cannot be used as risk-free collateral to lend dollars, so Cindy will be unemployed, Bob cannot buy Alice's bag, and can only buy pants, and Alice will also face the loss of not being able to recover the expanded reproduction.

Once the bow is shot, there is no turning back. After Trump abandons the dollar hegemony, the seigniorage collected by the dollar from the world will also face the death spiral of Luna-UST, but it will take longer.

The fragmented world trade and financial system is, on the contrary, a catalyst for the "globalization" of cryptocurrencies. Embracing the power center will create a single point of obstacle. The U.S.-based Bitcoin will not harm Bitcoin, but the dollarization of cryptocurrencies will make cryptocurrencies disappear.

What's more interesting is that in the future, the shock of the global economic system will continue to cause the offensive and defensive existence of stablecoins. The increasingly fragmented world always needs glue language and cross-chain bridges. The era of global arbitrage will inevitably exist in the form of on-chain stablecoins.

Sad frogs entertain the public, and fun people change the world. Let us explain why this is the case.

The tail wags the dog, and stablecoins drive out volatile coins

The market value of cryptocurrencies is "fake", and the issuance of stablecoins is "real".

The $2.7 trillion cryptocurrency market cap is just a feeling we have about the "capacity" of the crypto market, and the $230 billion stablecoin is at least backed by real reserves, although the 60% USDT reserves are questionable.

With the USDCization of DAI or USDS, the full or excess stablecoins based on on-chain assets have actually disappeared. The other side of real reserves is a significant reduction in capital efficiency, or the money multiplier. For every $1 issued, $1 of stablecoin is used to buy $1 of Treasury bonds off-chain and to borrow on-chain, with a maximum of 4 times the re-issuance.

In contrast, the value of BTC and ETH is "created out of nothing", worth $84,000 and $1,600 respectively. Compared with the US dollar, the M0 of cryptocurrency should be BTC+ETH, that is, 19.85 million BTC and 120.68 million ETH. M1 should add $230 billion of Stablecoin, and the YBS re-issuance and DeFi ecosystem based on pledge and lending relationships constitute M2 or M3, depending on the statistical caliber.

Such a face will better reflect the current status of the crypto market than market value and TVL. Calculating the market value of BTC lacks practical significance. You cannot fully convert it into USDT or USD, and the market lacks sufficient liquidity.

The crypto market is an "inverted" market, and the volatile cryptocurrencies do not have corresponding stablecoins in sufficient amounts.

Only under this structure does YBS have practical significance, because the volatility of cryptocurrencies can be cast into stablecoins, but this is only a theory and has never been realized in reality. Even 230 billion stablecoins have to provide liquidity and access channels for a 2.7 trillion market.

Ethena eclecticism, an unsuccessful reproduction of the U.S. debt and dollar system.

Ethena's USDe has expanded from 620 million at the beginning of its issuance to 6.2 billion U.S. dollars in February this year, with a maximum market share of 3%, second only to USDT and USDC. It is the most successful illegal currency reserve stablecoin since UST.

USDe's hedging model is actually very simple. AP (authorized issuer) deposits interest-bearing assets such as stETH, and Ethena opens short positions on Perp CEX. In historical backtesting data, in most cases, long positions provide funds to short positions, and funding rate arbitrage becomes Ethena's native protocol income.

As for why Hyperliquid is not responsible for the short position, because Perp DEX is still a derivative of Spot CEX, the core source of Hyperliquid's price oracle is Binance, and USDe simply goes to the most liquid CEX.

But this is not all, Ethena is still going a step further in imitating the real US dollar system.

On the surface, Ethena has four token systems, USDe and sUSDe, ENA and sENA, but the core of Ethena has always been USDe. The most important scenario is the adoption rate of USDe in addition to "pledge and financial management", such as transactions and payments.

Recalling the operation process of the US dollar, the US dollar cannot be fully reinvested in US bonds. The most reasonable situation is that a small part of the US dollar flows back to the bond market, while most of the US dollars remain in the hands of other countries. This can not only maintain the global currency status of the US dollar, but also maintain the purchasing power of the US dollar.

At the beginning of this year, USDe attracted about 60% of USDe to pledge as sUSDe with a yield of 9%. In essence, this is the liability of the agreement. In theory, the remaining 40% of USDe has to pay 9% of the income for 60% of the people, which is obviously unsustainable.

Therefore, the interest alliance between ENA and CEX is extremely important. Referring to Circle, it has to share profits for Coinbase and Binance to hold USDC. ENA essentially has to bear the heavy responsibility of "bribing" AP. If the big households do not sell, everything will be fine, and sENA is another guarantee for stabilizing the big households.

Nested layer by layer, the best object to emulate is not the US dollar, nor USDC, but USDT. The profit of $14 billion belongs to Tether, and the risk of $160 billion is shared by CEX and retail investors.

Nothing else, P2P transfers, spot trading pairs, U-standard contracts, and the assets of retail investors and institutions all need USDT as the most widely recognized trading intermediary, while USDe does not even have spot trading pairs.

Of course, whether the cooperation between Ethena and Pendle can reshape the DeFi ecosystem and shift it from lending to Yield will take some time, and I will introduce it separately in a later article.

YBS is essentially a customer acquisition cost

In 2014, USDT initially explored the Bitcoin ecosystem, and then reached a cooperation with Bitfinex, taking root in the CEX trading scene, and then settled in Tron in 2017/18, becoming the absolute leader in the P2P scene.

The subsequent USDC/TUSD/BUSD/FDUSD are just imitating, and have never surpassed (a spit, Binance is born with a conflict with stablecoins, and has killed several stablecoins).

And Ethena, relying on the "bribery" mechanism, has won part of the CEX market, but has hardly seized the compliance scene of USDC, let alone the transaction and transfer scene dominated by USDT.

YBS cannot enter the transaction scene, CEX, payment scene, and off-chain. It relies solely on income, and only DeFi is left.

The existing YBS can be divided into the following categories:

YBS's income is the liability of the protocol, which is essentially the cost of acquiring customers. It needs more users to recognize the standard of its US dollar equivalent and hold it by themselves, rather than investing in the pledge system, in order to maintain it.

Among the current top 50 stablecoin market capitalizations, there is a split of just 50 million U.S. dollars, and the APY list of YBS is as follows:

According to DeFillama’s data, the current YBS income of Ethereum can be reduced to Ethena and Pendle, which is in stark contrast to the thousand-fold return since DeFi Summer.

The era of huge profits has ended, and the era of low-interest financial management has arrived.

Profits and losses come from the same source. Today, US bonds have become the underlying income pillar of most YBS, which is not safe. Secondly, on-chain income requires extremely strong secondary liquidity support. Without enough users participating, income guarantee will become the Taishan that crushes the YBS project.

This is not surprising. Usual, invested by Binance, manually modified the anchor ratio. Sun Ge's USDD can still guarantee a 20% return rate. Kids, this is not funny. If the most successful USDe native yield is only 4.9%, then where does the 20% of USDD come from? I can't figure it out.

Here we need to make a distinction. The yield in the above figure is the yield of each pool, and even includes the yield of LSD assets. It is not completely equivalent to the yield given by each YBS natively. The source of the yield of participating in DeFi is likely to be the participants themselves. This truth has always existed.

More and more YBS are emerging. There is no doubt that the focus of competition is still market share. Only when the vast majority of people want to use Stable instead of pursuing Yield, YBS can maintain high yields while squeezing out the use space of USDT.

Otherwise, if 100% of users pursue returns, then the source of income will disappear. Whether it is Ethena's rate arbitrage or the on-chain of US bonds, there must be counterparties who lose income or principal. If they are all making money, then the world is a huge Ponzi.

Add some trivial points for discussion

——This article omits the introduction of Aave/Curve’s GHO/crvUSD and other CDP mechanisms. It feels that it is difficult to become the mainstream of the market. MakerDAO has not taken the route of the central bank on the chain. If it is replaced by other lending protocols, it is likely that this road will not work;

——Regarding stable calculations, such as UST and AMPL, the market has no longer paid attention to these outdated products. Everyone prefers assets based on real assets or mainstream assets on the chain;

——Pendle and Berachain, the former represents the new trend of DeFi, and the latter is the fusion mechanism of public chain + YBS. This part is too important, so I will dig a hole and write it separately;

——This article does not involve institutional issuance or adoption, as well as off-chain payment, trading and other uses, but focuses more on the source of income and potential market opportunities of YBS.