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【Dapp Pocket】DeFi Weekly Report for the fifth week of September: Are stablecoins becoming tools for money laundering? Introduction to 4 major stablecoins.

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【Dapp Pocket】DeFi Weekly Report for the fifth week of September: Are stablecoins becoming tools for money laundering? Introduction to 4 major stablecoins.

Dear DeFi enthusiasts,

This week, CommonWealth Magazine reported that the parent company of the US dollar stablecoin USDT is suspected of money laundering and has connections with several local banks in Taiwan. Let's discuss this matter and introduce the pros and cons of the 4 types of US dollar stablecoins on the market.

Other headlines this week include: DeFi protocols focusing on second-layer scaling solutions; Aave launching the first governance proposal on the Aave Governance mainnet; TokenSets introducing liquidity mining through proxy; Ethereum 2.0's second testnet beginning "dress rehearsal"! In addition, white-hat hacker Samczsun shares how to save a $10 million smart contract; MakerDAO's Rune praises cDai and aDai in Maker's collateral model; and Bankless' Ryan boldly calls for who will take over Dai's position?

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1. Our View

Stablecoins Used for Money Laundering? Introduction to 4 Major Stablecoins

US Dollar Stablecoin USDT

Last week, news broke that USDT's parent company, iFinex, was involved in an international money laundering case. Despite being the largest in terms of trading volume and issuance, USDT is considered one of the most unstable stablecoins in the market. USDT was created to meet the hedging needs of cryptocurrency users, but its opaque issuance mechanism has long been criticized. Tether, the issuer of USDT, has frequently changed addresses, quietly amended terms on its website, claimed to be backed by the US dollar but has never been transparent about the actual reserves. Over the past few months, USDT has been continuously issued, akin to central banks printing money at will, leading to a growing potential inflation crisis.

Are There Better Options?

1. USDC

Stablecoins can be categorized based on their underlying collateral as fiat-backed or debt-backed. Among fiat-backed stablecoins, USDC is a more transparent and cleaner option. Its issuer, Circle, regularly discloses financial conditions through law firms to ensure a 1:1 exchange ratio between the US dollar and USDC. Circle holds legal financial licenses in various states in the US. Additionally, its co-issuer is the largest U.S. exchange, Coinbase. USDC is also widely adopted by many DeFi applications. The recent release of USDC 2.0 hints that in the future, users may not have to bear ETH gas fees themselves.

2. Dai

The debt-backed stablecoin Dai from Maker is a favorite in the DeFi community. Users can borrow more Dai by collateralizing ETH, which makes this stablecoin, backed by blockchain-native assets, more trustworthy. However, since the Black Thursday event on 3/12, MakerDAO has gradually allowed other assets linked to fiat currencies to serve as collateral, such as USDC, USDT, and others. This move towards mainstream stability has led to a gradual departure from the spirit of blockchain-native collateral, indicating that any future fiat currency mishaps (such as severe USD inflation) could impact Dai. Moreover, Vitalik also suggests automatic generation of the DSR deposit rate, instead of relying on inefficient community voting governance. Its contract design is complex, requiring the creation of CDPs to collateralize debt positions with ETH, making it challenging for the average person to use.

3. sUSD

Synthetix's sUSD, built on a derivatives platform, is a less popular stablecoin but offers more robust debt-backed stability. Currently, the only asset that can be used to mint sUSD is the Synthetix native token SNX. Unlike minting Dai with ETH, which carries higher volatility risk, sUSD is not pegged to fiat currencies. When users use sUSD to invest in various synthetic tokens on the Synthetix platform like sETH, sBTC, etc., the sUSD used for trading is automatically burned rather than re-entering the market. This mechanism reduces liquidity pool influx like Uniswap and helps maintain a 1:1 ratio with the US dollar.

Our Ideal Stablecoin

While each of the three stablecoins mentioned above has its advantages, USDC is subject to control by centralized entities; Dai is gradually moving closer to fiat-backed assets like USDC; and sUSD has higher price volatility due to its collateral, SNX. If USDT does not address its issues, it will likely be replaced by the more transparent USDC or central bank digital currencies (CBDCs) in the future. However, there is still a need for completely decentralized stablecoins like Dai or a USD stablecoin based on debt collateral, with ETH as the sole collateral and a simpler contract design than CDPs, allowing parameters like interest rates to be determined automatically by the contract rather than through community governance. This currency revolution is just beginning.

2. This Week's Headlines

✨ Headline of the Week

After enduring high Gas fees, DeFi protocols shift focus to layer 2 scaling solutions

The issues of surging Ethereum gas fees and network congestion during the explosive growth of DeFi in recent times have prompted Synthetix to initiate the first phase transition to Optimistic Ethereum; Uniswap is undergoing a significant upgrade to Uniswap V3; and Aave introduced the V2 update of its platform in August, incorporating EIP 2612 to reduce transaction costs.

Aave initiates the first governance proposal on the Aave Governance mainnet to determine the migration process from LEND to AAVE

Aave has launched the first governance proposal, AIP1, on the Aave Governance mainnet. The proposal includes migrating LEND to AAVE at a ratio of 100:1, making AAVE the new governance token of the platform; increasing the total AAVE supply from 13 million to 16 million, distributing them to the ecosystem reserves; and allowing users to deposit AAVE into the Safety Module (SM) to earn AAVE as a safety incentive (SI).

Set Protocol introduces liquidity mining on its asset management automation platform TokenSets

Decentralized asset management protocol Set Protocol has announced the introduction of liquidity mining on its asset management automation platform TokenSets. The first strategy launched involves providing liquidity on the ETH/DAI trading pair on Uniswap to automatically mine Uniswap tokens UNI, with profits reinvested into the strategy.

Ethereum 2.0's second testnet "Spadina" runs for 3 days in a "dress rehearsal"!

Danny Ryan, core developer of Ethereum 2.0, announced that the new testnet Spadina will officially launch on the 29th for a three-day period. The Spadina Launchpad platform, which is driving this rapid testnet launch, is already live. Danny describes Spadina as a "dress rehearsal" to allow developers and the community to conduct another public test before the launch of ETH2.0 mainnet, experiencing the staking and genesis processes.

🚀 DeFi Protocols

🏛 Stablecoins

🛠 Liquidity Mining

⚠️ Attack Incidents

💰 Financing

👻 NFT

3. Insights from the Experts

White hat hacker Samczsun: We saved a smart contract worth $10 million

Founder of MakerDAO, Rune Christensen: Using cDai and aDai as collateral for Dai is the perfect model

Bankless advocate Ryan Sean Adams: We lost the truly decentralized stablecoin Dai, who will take over?

4. Data Insights

Weekly data collected from 2020/9/22 to 9/28. TVL (Total Value Locked) indicates the total assets stored on the platform; IPY (Interest Per Year) is the current borrowed funds * annual interest rate, representing the platform's annual interest income. Data source: DeFi Pulse, CoinGecko. (Unit: million US dollars)

5. Memes

Author Bio

  • Raizel / Economics major at NCCU, got stuck in Bitcoin and turned to DeFi

  • Thomas / DeFi enthusiast working in chip design in Boston

  • Anderson / Founder of Dapp Pocket, prefers DeFi deposits over bank deposits