Centralized vs. Decentralized Stablecoins: Who Wins? l KBW2024

all right well uh thank you for sticking around for this and uh excited to chat with uh this group here uh centralized versus decentralized stable coins I think there's a lot to unpack here uh we got a great set of panelists here uh we've got guy Young from Athena uh Chris Carol from cvan and Nick van from Agora uh just briefly if you guys want to give just a a description of your project uh Nick why don't we start with you um Nick founder and CE of Agora we launched a new US dollar stable coin what we're trying to do is build incredibly neutral institutional grade uh us digital dollar that partners with you know every business whether it's a fintech Dap whomever we want to share uh the majority of the net revenue on their platform with them um and have an open partner model versus the traditional exchange back ones like usdc Chris carola from KV we're kind of an an integrated defi application so we unify things like dexes money markets uh cross chain composability all these different things together and support the full range of assets so that's everything from interest bearing stable coins centralized stable coins uh LP positions uh whole nine yards so working with a lot of these gents and uh many more hey everyone uh my name is Guy young the founder of Athena uh we issue a synthetic dollar it looks quite different to the product uh that Nick's bring to Market just in terms of the construction and the backing that sits behind it so the basic idea here is that you're taking crypto collateral into the protocol and then Delta hedging that that collateral using derivatives um that enables you to then issue a dollar against that collateral which also captures a pretty interesting yield uh from both stake de returns and then also the basis within the Futures Market um we came to Market uh at the beginning of this year around uh late uh February and grew to just over $3 billion in the six months following that um and yeah excited to be here with these guys awesome um well I guess like first things first uh going with the title of the panel uh thinking about decentralized stable coins you know I think like everybody first thing you think of is probably makers die uh Rebrand aside just like thinking about their growth um despite how much growth they've had if you compare them to like a usdt or usdt uh they're still you know much smaller uh so the question kind of is like is there room for decentral stable coins to grow as big as what we see with centralized stable coins and and like how do they do that um guy maybe start with you yeah might just start like on the definitions because I think um like decentralized vers centralized is quite a um a gray area when we come to defining it so um I think maybe a better way to frame it is just onchain versus uh fully centralized offchain um staes and I think the the problem that actually maker came into uh much before now was actually just the CDP model that they had when they fully decentralized with just eth was just a fundamentally unscalable model because it required uh demand for leverage on eth as sort of the input into how large they could scale and I think any asset that's not linked to us treasuries or actually just having dollar backing is eventually going to come into that problem because fundamentally the demand for dollars is just so much larger than the demand for leverage um and so yeah I think the basic answer here is that you can never compete at the scale and size of usdc or usdt unless you have some like some form of dollar backing actually sitting in your in your product um I think it's really a question of where do onchain stable coin issues actually decide to go and attack market share because I think the size of Defi and the opportunity there has been pretty much captured by maker and then new entrance who have come in and really the growth that you see from usdc and and USD has been driven by a lot of the activity that you see on centralized exchanges as trading collateral and I think to the extent that they don't move um out of their focus on just pure defi uh it's going to be pretty hard to to go to that size yeah thanks um no I think that was a great answer and maybe instead of just like asking the the same question uh thinking about just like newer stable coins that are coming up like Nick you've been working on Agora like how do you think about kind of entering this market and and what do you kind of see as like your biggest growth factor yeah I think for us and guy maybe touched on this a little bit is we have a much broader aperture that we go after right so it's not just uh onchain collateral in defi or use in defi or use as a as a quote token but also B2B payments um P2P payments and so we view ourselves as as kind of the dollar checking account but for us what we're doing uh to start is is actually you know choosing to go where the puck is going so we launched on eth about six weeks ago um and Avalanche about two weeks ago we deployed a sui earlier this week and focusing on on chains and and new ecosystems um and a lot of like these higher throughput chains um to to Really Drive our growth the in the early Innings but beyond that it's going to centralize exchanges finex daps all these people who use usdc usdt today but ultimately um you know drive that value back to Circle or tether whereas with us you know we'll sign an agreement with an application um you know or a decentralized stable so my co-founder Drake was the lead Dev at fra we work very closely with them and we'll be their Fiat coin partner and saying hey we'll share income with you for services that you provide to us and in trax's case right they had 300 million of usdc and so that can be really meaningful uh we could work with companies like ethena as well um and ultimately you having that open partner model and going to all these ecosystem participants and saying you know we want to be your stable coin partner and today that doesn't really exist for centralized players um because you just have the duopoly of usdc and usdt and we view them as as really rent Seekers yeah got it um and then Chris I mean given you know you're not really working on a stable coin but you you know you're thinking about different types of collateral list how how to like kind of bring more economic utility maybe to to some of these stable coins like where do you kind of see like centralized versus decentralized stable coins fitting into to what you're doing yeah I I kind of view us as like demand side if these guys are supply side then we're like the consumers of those stable coins basically so you know from my perspective there's really two things that are important is the liquidity Factor like how deep is the liquidity if we need to liquidate people if we need to you know deploy liquidity externally using that stable coin so on so I think that in general you typically see larger uh you know liquidity depth Capital efficiency whatever you want to call it for centralized um or these kind of like more nuanced like tokenized strategies like Athena and such um because if you look at decentralized like pure decentralized over collateralized CDP positions it's not a one toone Capital uh you know efficiency layer I guess if you want to think about as like the collateral versus the stable coin outcome um so that just means you're getting less bang for your buck right it means that there's also going to be less demand for those things which means you need a higher APR associated with that to make up for that difference um so it's just I would say better to work with the aoras the athenas of the world than these kind of um more bespoke uh you know CDP models and and such um you know there's there's also like the cross chain side right like a lot of the solutions these guys of bill has been more around like unifying that liquidity being able to burn on one side on another and so on and that's really important for us as people want to rebalance to do things like liquidations or capture APR as you said like you know Capital uh like how do you get yield on those stable coins how do you capture um you know value being in those tokens um that kind of composable nature is is really attractive for US versus just being on one chain yeah and as we kind of think about more centralized stable coins like you know you think about usdc you think about usdt you kind of look at the volume of us across the you know the space um you got you guys going to catch up like how do you kind of think about competing with some of the volumes these guys are showing yeah I think um actually the volumes on Athena's dollar is actually pretty low relative to the size of the market cap and I think that that's um more of a function of actually the use case of um Athena's product versus those so uh Athena's USD has a pretty high opportunity cost if you're going to be putting that into an order book or an amm you're not earning the embedded yeld that's actually being uh produced by atha and so to actually get or incentivize people to do that and use it as a trading pair uh is quite expensive especially from the users perspective when they could just sit in in the yield bearing product itself um and so I think the the use case that we've seen the most traction is actually the collateral piece within defi where you can use it as money Lego to do new and interesting things on money markets but then most interestingly I think it's the collateral piece within CI um we came to Market with a pretty um uh Innovative I think uh product launch with bybit where you you have uh USD capturing yield as your collateral while you trade derivatives um that grew to just under $450 million in size in in just over a month and I think to us demonstrates that actually what users are wanting out of this is less of something to trade in and out of a BTC and eath where those pairs are just extremely liquid and hard to to sort of displace um usdt and instead it's actually just saying uh we're improving your Capital efficiency while you trade and I think that that's a compelling enough sort of use case uh versus those other those other products yeah for us it's going to be a multi-year journey uh for sure uh the way that I like to think about it is sort of you know old buckets of liquidity and new buckets right so there's new centralized exchanges new Chains new dexes that launch every single day and so it's really easy for us to go and compete against usdc and usdt before those venues have launched and and sort of win that business over right and so uh in those areas we're actually seeing a tremendous amount of success very early on because this is just a better model for that business right um they're actually capturing the value of of the stable coin that's sitting on their platform um and so you know we'll start to see our volumes take off their over time going into binance and trying to compete with usdt liquidity is not happening anytime soon for us and so we're really focused um you know on on this two-pronged approach but I think the newer venue uh approach is going to be much you know uh show success much quicker uh and then working with some of the older venues like you know the okx buybits you know Krakens of the world um and shipping away at share over time but I think that's going to be a much longer game um and you know I think there will be a Tipping Point where we come close to sort of usdc liquidity and then you know we just topple them and then uh you know we'll you know March up that very large Hill to try to compete with usdt uh but I think it'll take take many years and and you know maybe we don't actually uh ever surpass them and they kind of be the the global liquidity layer but uh that's how we think about you know the approach and then Chris like in terms of growing curv ANS once you guys launch uh you know what are you primarily looking at I know you're some Structured Products some some stable coins but like you know are you kind of looking at that longer taale and is that where the growth is going to come from or are you kind of centralizing it in like a you know kind of the 8020 yeah it's a good question I think for us it's really about we have you know a large range of we could really support any asset out there so it's a a wide net we C but we actually want to take fewer outsize bets so you know it's better to work with people that one want to work with us to have their own growth prospects um such that we could kind of grow together right I I think in general the industry is so new there's you know not that many entrance in general um and the kind of future state for crypto for Defi and such is it's we're we're going to be growing a lot more hopefully anyway so I think for us it's about finding people we like working with and you know building things together so that's like if that's Structured Products with them if that's just like the kind of naked assets itself um um you know we can we can go down those paths and then it's about doubling down on winners right so we can try a lot of things we you know been very fortunate to build a wide Network I imagine some of those initiatives are going to be very successful and then some of them are going to be less successful right so it's about doubling down on your winners and um you know just being Nimble I guess as as chains launch as products launch as the industry matures making sure there we're not asleep at the wheel um and making sure that we can grow with it good shift gears here just a little bit um you know I think this is something that we all think about no matter what we're doing but it's kind of the regulatory environment uh how do how do you guys think about navigating that just like is that a hindrance to growth uh are there changes that need to be made in in regulatory or how do you think about that now uh how about you guy yeah sure I think the first step that we took is we had uh no access to the US um TBD with how that sort of like changes um post elections but I think um from our perspective it's just too high risk to sort of interact with users there um in particular um I think Ma sort of rolling out uh did give a bit of clarity but I think is a pretty unworkable framework for for a lot of issues who sitting um in Europe at least uh but we have made a bit of progress there uh around actually getting listed as something that doesn't look like usdc as an e-money token but more of an a asset reference token um so that's one positive sort of advancement that we've had over there um but yeah our approach has generally been set something set everything up within Athena to be maximally flexible so that if something does sort of change you have the ability to actually respond and sort of change the product to it uh so in particular the the contract that captures the yield within Athena uh is fully upgradeable and can sort of be adjusted as required if there is sort of a change in the way that Regulators want you to sort of handle that Nick what about you yeah we actually have mtls in the United States but are uh not serving us customers or businesses just because for us it's just not worth dealing with the United States now um as like a primary Market ma did certainly clear things up although as guy referenced there's some issues around it right so um one of which is if you offer you know stable coin there you have to keep it in Bank deposits are the majority of the Assets in Bank deposits we see or saw why that doesn't really work uh with circle dpeg obviously they kept you know three and a half billion dollars at svb svb went under um and you know that that impacted their business with us we keep all of our assets uh in overnight reverse repo or short dated us treasury bills and so security so you know ultimately our our counterparty is the the federal government of the United States which I think is a much better counterparty than a Regional Bank um but we're looking at uh regulation in Bermuda Singapore uh and Hong Kong also has a framework so there is being you know progress made around centralized uh issuers but um for now I think the United States is probably not the best place to go um until you know there's there's Federal legislation on Stables um because you know federal government in the US is is King yeah um as a us-based company we we think about that a lot as well um so being that we're in Soul feels feels like appropriate to ask uh you know we're we're a few years out from us and Luna and kind of everything that happened there uh we've seen a lot of Retros we kind of all know the story what can we learn from that what should we take away from that um Chris why don't we start with you could you speak on that a little bit more just for the question there yeah I mean we we kind of saw the the rise and fall of us and luno we saw different mechanism design choices made we saw different uh types of actions being taken like you know if if somebody wants to you know replicate that model or you know kind of do it I guess differently um you know what should they be doing differently yeah I I think in general algorithmic stable coins and you know products like that run into a whole host of issues like you know whenever you have like high volatility whether it be like you know liquidity events like either liquidity drying up or flowing in like it could create a lot of down stream issues so I think there will be many attempts at Luna again um under different names and you know kind of um new Cod paint if you will but I don't think that at the end of the day they're scalable enough and sustainable enough to you know really stand the test of time I do think that you know people are always building really cool things in Defi and crypto in general and I think that we're going to see new mechanisms come out you know are any of them stable I mean I guess time will tell right but I I think from from our perspective like we want to go for like the you know safest most scalable products first and you know we'll look at these like more um you know like cutting edge bleeding edge uh algorithmic or other novel designs with trepidations um but obviously with uh open uh open ears as they build um guy how about you yeah I think uh they clearly don't work and I hope people don't attempt them again um agreed hope that's obvious um I think yeah a couple lessons on ours side maybe one negative and then one positive was uh I think there has actually been a tone difference in Founders this cycle versus what you saw with with do last cycle where um the approach then was whenever you had sort of criticism or um request to just provide transparency around things it was sort of shut down in an extremely arrogant uh sort of way and I don't think we sort of see Founders behaving in the same way the cycle which is actually pretty healthy where uh there's reasonable introspection into how the mechanics of something work and I think there's just much more sort of transparency and open discussion around those things which is a pretty good thing um one piece that we did take away from Luna which I think uh they did a good job around which I know sounds strange to say is actually the way that they thought about actually building an ecosystem around their product because uh really they issued us and then were quite thoughtful around what are the apps that actually consume dollars uh and and actually went out and sort of built out themselves and so I think this is a bit of a theme where for onchain um dollar issues in in particular you actually need to be quite thoughtful around what are the types of financial applications that you can actually try and build around your product to to build an ecosystem on it and I think that that's just one piece that we're sort of uh working on at the moment at Athena which is thinking about moving from a single asset issuer to more of a platform that others can can build on your product and I did think that that was one piece that they did reasonably well yeah actually we had a conversation uh maybe like six months ago and you said something that has stuck with me to this day you basically said uh I want Gauntlet to look at Athena if you guys tell me it's not going to work I'm not going to keep doing it I'm not trying to build something that's going to blow up and I thought that was just like a really I mean it seems it it seems odd to call it a mature statement but if you think about Founders in the last cycle that's not the types of things they were coming and like asking they weren't saying like come tell me this isn't going to work and I won't do it they were just saying this is how it's going to work and it's going to work no matter what it seems quite consistent actually in crypto that we think that econ IC laws and gravity and stuff don't really apply in this like weird sort of um space that we're in and I think we learn the whole time that they do apply just like n else um so yeah yeah absolutely um all right we've got a minute left um why don't we just round robin you know if you want a closing statement on on stable coins uh Nick why don't we come back to you um yeah I I guess maybe just stting with the title centralized versus decentralized I don't actually think it's one versus the other I think there's a lot of ways in which they can work together uh we're working very closely with these decentralized Stables we actually view them as some of our best customers as we fit right into the the PSM or other forms of collateral for them or maybe expand their potential market share you know guide talked about this earlier right if you're just sort of focused on on Leverage and and don't tweak the product over time you sort of pigeon hole yourself into a smaller Tam so I don't think it's one versus the other I think they they work hand hand in glove with one another Chris uh I think from our side you know we think about how do we continually legitimize uh crypto and in general and stable coins really of the best product Market fit thus far so you know let's keep building you know getting these things out there um and as guy already talked about getting this kind of like composability of stable coins is going to be important bring us home guy uh yeah I don't know what to say outside of that um I think we obviously all quite bullish on the market from where we are now I think we've actually seen this cycle it's probably one of two things that crypto's actually found reasonable product Market fit um especially for like a non-speculative use case uh so I think we're just pretty excited to be part of that growth in the next few years we think that the market gets much larger than a trillion dollars in in sort of the time that we're working within it and we just want to be part of that that growth with everyone else awesome well guys thank you so much for taking the time thank you all for joining us [Music] okay thank you for that