The ETH Stablecoin Landscape, Martin Froehler, USPD | ETHSofia 2025

All right, welcome everyone. My name is Martin. I'm CEO and founder of USBD and Morpher, two uh Ethereum based uh crypto startups. And I want to talk today about the stablecoin landscape with a special focus on Ethereum and stable coins on Ethereum. Um, stable coins have become arguably crypto's killer use case uh in a sense that uh they are used also by regular people.

So by people who are uh not as we are at crypto deense and and do anything onchain but by regular people and we can see here the transactional uh volume of stable coins over time and compared uh to Visa, Mastercard and American Express and you can see uh a steep rise especially in 2024 um where the volume of transactions with stable coins already uh has overtaken the volume of transactions that Visa uh settles per year and we can expect the 2025 numbers are not in yet but we can expect this to even grow further in 2025. But what are stable coins uh used for primarily and um there there has been a survey that uh was actually conducted among 2,500 people from emerging market economies such as Nigeria, Indonesia, Turkey, Brazil and India. And they were asked um what do you personally use stable coins for? And of course the bulk of them is also present on chain already. So 50% of them also use it for crypto trading and other things like that.

But there is another use case for people in emerging markets and that is saving money. Saving money in dollars because typically uh people in emerging market countries have national currencies that don't work that well. They are very inflationary. Um and they also send money back and forth uh back home and and so on also for remittances. And also interestingly the the second point from the bottom is um health self custody of my money.

So this is also an an issue uh that people could can easily be debang debbanked deplatformed in emerging markets. So there's real world use to stable coins. Uh stable coins are fast growing. Um and forgive me if that number is in the meantime not correct anymore. This was taken last week uh where the market cap was $32 billion in total value locked in stable coins across all blockchains and the bulk of it is still on Ethereum because Ethereum is objectively the most decentralized secure uh blockchain out there.

So it's the ideal settlement layer for censorship resistant stable coins. But maybe surprisingly for some uh including myself uh the second runner up is Tron uh with 90 billion dollars of stable coins on their blockchain on their network predominantly in tether. And then we have Solana of course and uh base with 28 and uh no Binance Smart Chain sorry with 18 billion and then uh we have Bass with 12 billion already and the rest is distributed among other protocols among other blockchains. Um so give or take Ethereum is still the foundational layer for uh most of the stable coins but Tron's position is surprising. Um how are they distributed across uh the individual stable coins and you can see the market is quite concentrated.

So the largest stable coin by far is Tether. I believe everyone in the room knows that and has probably already used Tether once. Um but Tether is centralized and we will get to the details of each of the stable coins in a bit. Uh the same is true for circles. USDC.

Circle is the smaller brother, the little brother of Tether. Uh they are also centralized. It's issued by a company by by Circle in the US. Um and they have like 74 billion in AOM. Then the third one, this is an interesting one.

This is Athena. This is a pretty new project and I will get into more details on that as well. Uh that is also a custodial stable coin, but is a cryptonative stable coin. And then we have the biggest D5 stable coin, the the OG of D5 stable coins, that's Maker Dow D um which is decentralized to some extent. And then we have a a bulk of other stable coins.

So at the moment stable coins are like really hot and a lot of new protocols and projects are being formed and launched every day. Uh but you can see that the industry is still in the hands of Tether. All right. It is worth to take a closer look at the big four like tether circle, Athena and die and see what they have in common and what separates them and what's the good and the bad and the ugly about each of them. So let's start with uh Tether.

Uh Tether is the biggest stable coin and what we can see here is that uh they typically their 24-hour volume equals their market capitalization. So it's insane how much tether is being used and sent around. And again, this goes a lot to tether on Tron where it is like used for everyday transactions as well. It is the longest surviving uh stable coin and the largest stable coin in circulation. Um you can also see it had its hiccups in the past, but by and large it was able to maintain its back peg to a dollar.

Um pretty decent. And it was also able uh to honor all redemption requests. Um so Tether works. But how does it work? Um, well, it's actually pretty easy.

U, you send these three gentlemen some money in the banking system and these three gentlemen then mint the Tedar token out of thin air. No, not really, but with the money that you've sent them, and they send you an ERC20 token, the Tedar token on the blockchain. And uh, what they do in return is if they are honest, and we can assume that they are, uh, uh, if they're honest, they're buying bonds and treasury notes with that money. And these bonds generate interest and that interest is Tether's income. And that's roughly like between 3 and 5%, let's call it 5%, for sake of simplicity, that they make with the $100 that you sent them in the banking system for minting 100 Tether.

All right. This whole process is unfortunately centralized and it is also pretty opaque. Tether to this very day has not performed a single individual uh and independent audit. Yeah. So nobody knows if they're actually fully reserved, where the reserves are kept and and they haven't done an audit there.

So nobody knows. It's pretty much the business model is trust me, bro. Yeah. Um that's also why they have a rating of D uh from bluechip.org.

Uh I don't know if you are familiar with bluechip. I recommend to look it up if you want to get an independent view on the safety of stable coins. This is a rating agency. um and you can look it up there and see how the different stable coins do there and is not recommended by this rating agency to use tether. All right, the second largest is circles USDC.

Uh it functions pretty similar to Tether. Uh it is much smaller also in terms of transaction volume only half its market cap and it's also fiatbacked and it was founded 2018 by Sentra. This is a joint venture between Circle and Coinbase and to this very day Coinbase is very involved uh in USDC and you can also see here by and large the the the history is long uh and the pack was maintained properly. So um yeah this is relatively stable but and yeah Circle is also regulated. This makes a huge difference compared to data.

So they are regulated in the US um by Fininsen and a couple of state regulators. Um they have reserves that are held transparently by regulated counterparties, custodians and they perform audits. Um and they have like 80% in shortdated US treasury notes and 20% in more liquid stuff like cash. Um uh circle had a problem though and this happened in March 2023. This was not uh due to a fault of their own but due to a default of one of their banking partners.

In March 2023, the Silicon Valley Bank went under and with it uh three billion of Circle's reserves that they kept at Silicon Valley Bank. And you see that with Circle, you might not have uh the risk of the issuer that much, but you still have the risk of the custodian of the Treadfi counterparties of Circle. And back then, the USDC dropped to like 85 cents a dollar. And uh this deep pegging was in place essentially as long until the Fed the Federal Reserve. So then the central bank stepped in and told everyone, "Hey, it's cool.

Uh we will b we will uh bail you out and we will honor the reserves that were lying around at Silicon Valley Bank." So the central bank had to step in essentially and uh save that stable coin from deep pegging. Yeah. Um it still has a blue chip rating of B+. That means it's decent.

It's regulated. It's audited. Ethena, that's the interesting one. That's a recent project. Uh the market capitalization is already 13.

74 billion uh but the volume is pretty small because most of it is probably used in DeFi and in smart contracts. It was founded by Gillang in uh 2024. And here you can see the the history the price history of Athena's USD. And you can see it's also pretty stable especially for for DeFi stable coin. So so far no hiccups in the track record.

Um how does it work? Uh so the business model is a bit different but also pretty similar to to the other stable coin projects out there. Um you actually put collateral into a smart contract but the smart contract is not uh non-custodial. Um so essentially you give some collateral and he gives you USDE in return. um and he does not buy um treasury notes with it, but he hedges the ether collateral um that's that was sent in with an ether short perpetual future to create a so-called delta neutral position.

That means for every $100 that come in in ETH, he opens a $100 short and then no matter what the price of ETH does, there is always $100 uh in the system. And the revenue generating mechanism is also different. This is funding fees. So, these are fees that are paid out by crypto exchanges to uh from the more popular side of a trade to the less popular side of the trade. So, typically it's the longs that pay the shorts and on average that's like 10% or so a year.

So, uh it's cryptonative. That's awesome. Uh it's semi-transparent because you can see what happens on chain, right? Uh but it is still custodial and to some extent centralized. Um there is no Bluetooth rating yet for um uh Ephina because the track record is not sufficiently long yet but I believe once it comes out it will be a decent rating actually.

All right make a dow die. Uh they rebranded uh recently but bear with me let's still call them D and Maker. Um they have a market capitalization of 5.3 billion and they are the OG of D5 stable coins. Um that was uh the protocol was founded in 2015 by Ron Christensen and you can see also here yeah it had some hiccups in the in the beginning uh but by and large it kept the peg pretty well.

How does D work? So D is created via an overcolateralized loan. That means that in order to create D you have to send ideally ether into a smart contract and then you can can take out a subset of the value that you have put in uh in D and mint it. So an overcolateralized loan typically the collateralization ratio is 150%. That means if you want to mint 100 D you have to send in $150 worth of ETH in a smart contract.

for the privilege of doing this and borrowing against your own stack you pay like 5% a year. Okay. Uh and of course you also have to manage the uh the liquidity of your own vault. That means that uh you when you create a vault on maker dowo um and you mint die you are subject to liquidation risk. If the price of ether drops then you would have to top up the collateral otherwise your position could be liquidated.

But D is overcolateralized and it is permissionless. So that's awesome already. All right, those were the the big four. Diet does have um a dirty little secret though. And this is the dirty little secret secret.

Uh please tell me again how a defi stable coin dex when a bank goes under. And this is exactly what happened in March of 2023. If you see the curves here, the green and the blue curve, those are USDC and DI and both depected in sync when Silicon Valley Bank went under. Now the question is why is that? And the answer is D is in the meantime 76% backed by USDC.

So unfortunately D is no longer an Ethereumbacked stable coin, but it is a wrapper for USDC. And you get all the treadfi risks that you have with USDC also in D. All right. Uh the blue chip rating inherited from USDC I guess is B+. Um yeah so stable coins have really come full circle right.

We have built it's the killer use case of crypto. We have built crypto for financial sovereignty uh for decentralization for permissionlessness transparency all the nice things. Um, so people want stable coins, big use case, but uh how do they want the stable coins centralized, opaque, and permissioned? And that's where we went wrong. And I think we can do better.

And this is what I want to introduce now real quick. This is the project that I'm working on right now. This is a permissionless US dollar and it's a dollar with onchain proof of reserves in ether and it can be minted by everyone by simply sending collateral into a smart contract. That's pretty similar to maker dow die. uh only you don't have to manage it and you don't have to overcolateralize it.

If you send a $100 in the smart contract, the smart contract keeps your $100 in ETH in staked ETH to be precise. Uh and nobody else other than you can take it out again. And you can also redeem from the smart contract by sending 100 USBD there and you would get $100 worth of ETH out of the smart contract. That whole process is decentralized, permissionless and transparent. So nobody can interfere there.

Uh how does this work? Now obviously ether changes ether's price changes so that we might be in a situation that the staked eth collateral that you brought in for minting is not sufficient or that it is too much. So that there is a second actor in our system and these are the so-called stabilizers and anyone can again it's decentralized operate such a stabilizer and the stabilizers have one job only and this is to overcolateralize the collateral on chain with their own money and to hedge it uh similar mechanism to Athena create a delta neutral position for the staked ETH that's on chain that's kept on chain and they do this with their own money so for $100 that come in a stabilizer deploys 50 of their own money and they hedge it for you you don't have to manage anything as stable coin holder and they are not doing this because they are a charity but they actually make like 25% APY on the $50 that they contribute for stabilizing. So in a nutshell again uh ether prices change you brought in $100 in Ether collateral on chain. Uh if Ether rises in price, the collateral gets worth more.

Uh you get excess collateral on the blockchain side which the stabilizer can use to cover the short losses. And if the ether price falls, it's the other way around. That's like really pretty simple mechanism to create a delta neutral position. All right. Uh the big benefit for holders of USPD is it's a natively yielding coin because you get 3% staking rewards via staked ETH natively rebased.

Uh that means without having to do anything with the stable coin, you get 3% already. For the stabilizers, it's great because they make 10% annually uh from funding fees and if they leverage it up as in my example, they make 25% per year. So uh we are this is also our business model, we will operate a stabilizer basically. So again the economics for every $100 that anyone mints a stabilizer puts in 50 out of their own pocket and the stabilizer gets to make 12.5 a year 25% for stabilizing that coin.

Now the big advantage is uh the competitive edge here is it's your Swiss bank account in cyerspace. It has transparent reserves. You can just look at the smart contract address and see that it always has 125% or more collateral for out all outstanding USBD. It's permissionless to and from ETH uh native yield. We mentioned that it is not freezable.

This is also another big advantage. People think they own their stable coins if they hold it with tether or circle. But these stable coins are freezable on an address level and it has zero exposure to banks and tradefire. Yeah, this is maybe the most beautiful advantage. All right.

Um, we went out of beta last week. So, actually we're it's pretty new. Yeah. And I'm happy to announce it here for the first time on stage in Sophia. Um, and this is a little reward for all the Ethereum in that audience here.

Um, if you guys want to become early adopters, we're giving away until the end of the year, uh, $1,000 every day in ETH, uh, which we distribute evenly across all holders of USBD. And just FYI, at the moment, we have 100K USBD minted. So, at the moment, this is like 1% a day that we're giving away to holders for USBD. Um, if you want to learn more, I think I can take a few questions here, but you can also meet me outside afterwards. Thanks for your attention.

Heat. Heat.