Why TradFi Stablecoins Need DeFi Stablecoins | Gerrit Hall - Curve Finance

for sharing your vision on what are the missing pieces for institutions when they come to adopting stable coins. Up next, we've got Garrett from Curve, who's a core contributor and will be sharing more on how Trat 5 stable coins and D5 stable coins can merge and come and work together. Garrett, all the best and over to you.

Thank you very much, GM fam, and happy year of the horse to everybody. Uh, as mentioned, my name is Garrett Hall. I'm a core contributor with Curve Finance. A quick bit of background about myself. I've been in crypto since over a decade.

I've been with Curve Finance for 5 years, which is of course a lifetime in crypto industry. When I joined, I thought it'd be about six months. Um, but it's been a fantastic experience working with Curve. It's also given me a bird's eye view of the ecosystem. So uh for this talk today, this is compacted from a much longer talk I gave.

Uh and I'm keep trying to keep ETH Denver in mind knowing that there's a whole gamut of people, some of whom know absolutely nothing about stable coins and some of whom could teach me a lot about stable coins. Uh the intent is if you stick around, if you give me 15 minutes, I hope everyone's going to learn a little bit of something about the state of stable coins in Q1 2026 and hopefully how Trifi stable coins and DeFi stable coins can and should exploit their synergies. So of course, stable coins have been Ethereum's killer use case. And just as I argue that TRDFI stable coins and DeFi stable coins are synergistic, Ethereum is the home of stable coins and Ethereum and stable need stable coins like stable coins need Ethereum. So I hope that the Ethereum community can continue to nurture this relationship.

Uh we've seen that stable coins have been incredibly resistant to boom bust cycles. If you look at the stablecoin TVL chart in the past two bare markets, they kind of just plateau and other than that they've just been going up. only stable coins are a killer use case for Ethereum. And let's get into some numbers. So, if you know nothing about stable coins, let's dissect it numerically.

It's pretty easy. If someone says stable coin, there's a 99.8% chance that they are referring to a US dollar stable coin. This is probably the most interesting chart in all of crypto. As mentioned, I've worked in crypto for a long time and I'm going to share a lot of my learnings throughout this.

U I'm going to posit them as axiomatic because it wouldn't be a curve talk if we didn't have some math terms in there. One of the most interesting things about crypto is even relative to other industries the successful execution of winners in any market have disproportionate advantages. Um as you see here the United States government despite having fought off crypto for the entire decade I've been watching it still managed to get a chart that looks like this. 99.8% of all stable coins are USD denominated.

It's remarkable. Usually, you don't sustain this sort of advantage. If you execute well, you might get super majority or plurality influence. Um, but there are tremendous spoils to being the winner in crypto. Another remarkable chart.

Let's discuss some more numbers about stable coins. If someone is referring to a stable coin, there's probably a 90 to 95% chance they were referring to a Tradfi stable coin as opposed to a DeFi stable coin. This is the TVL of the top stable coins. I've gone through and marked them as tradfi. Tradfi basically referring to a stable coin where you give a dollar to a bank.

The bank will take that dollar, try and earn yield off of it, usually by buying treasury bills. They'll try really hard not to return any of that yield to you, but they'll give you a token to go play in the DeFi casino. This contrasts with the DeFi stable coin, which can be a lot of different things, but generally takes the form of you put up some collateral like Ethereum or Bitcoin or another stable coin, and you get a decentralized stable coin. And as you can see, this chart is a bit more spread out. Again, massive winner take all benefits.

Tether's got about 60% of the market. Tether plus USDC combined have close to about 80% of the market. And if you're just looking at the general traditional finance stable coins, about 90 to 95% of the market, that really is quite remarkable. Um, now we can all interpret what the trends of all this is going to mean. Um, but I think the important takeaway is that stable coins come in many different flavors.

They're all trying to keep to a dollar, but their composition is very different. They act very differently. They can be modeled and treated as different financial assets. So if you're looking over this, you can just easily observe that they have very different risk profiles. The risk profile of a Tradfi stable coin is largely exposure to the existing banking system, but in a lot of ways this is very low risk, especially with the passage of the Genius Act.

If it is a genius regulated stable coin, it's in some cases even lower risk than FDIC insured. There's tremendous protections. Bad case scenario like the USDC DPEG we saw a few years ago. It was a frightening weekend, but once the banking system kind of got sorted out, everything was fine. And generally, if the trady issuer is behaving well, you can have a recourse to get your money back.

You can take them to court. It might take some time. It might cost some lawyer money, but your money is in a bank account. This contrasts with DeFi stable coins where in the worst possible case scenario, you might see a DPEG that looks like this. Everything just shoots to zero.

The money's gone. Uh this frequently happens where a protocol does not perform as expected or even worse it gets hacked and the money gets quickly bridged out sent somewhere else. It's the nightmare scenario for a decentralized stable coin and because most decentralized stable coins rely on code as law as opposed to the legal system as law. This has advantages but it can also mean your money is just gone. the natural correlary to this.

As I mentioned, I'm going to be talking about a lot of things I've learned within crypto and even positing them is axiomatic. But first, just another word on hacks. The state of hacks within DeFi is really, really tough to stomach as a developer because one of the little laws I've learned about crypto is that everything will get hacked on a long enough time frame. If you're lucky, it'll be 10,000 years from now, so we can still use it for a long time. Oftentimes the half-life of protocol getting launched to getting hacked is just a few months.

Uh firepan study showed that in 2025 every major DeFi hack happened to an audited protocol. And with the acceleration of AI giving hackers superpowers, the only way they can fight this off is with white hat hackers having superpowers protected. But the battlefield has shifted and DeFi has a lot of risk. This is other thing that I've learned in my time which is that if you're trying to evaluate the risk of a stable coin for instance, it's pretty much assuming the markets are efficient, a onetoone correlation between the yield the stable coin can give and the risk inherent in that stable coin. And we all kind of intuitively get this.

If you see a stable coin yield farm that's offering 30 million% yield or some eyepopping number, you know it's probably actually already been hacked. You're too late. Um, if you see 4% yield, it's pretty good. It's pretty safe. Uh, relatively speaking.

So, I spend a lot of time at curve doing this. I'm saying, where should I park my stable coins? I'll just reverse sort by APY and say too risky, too risky, too risky. Okay, that one's not efficient. That one's pretty safe.

And as much as I think people like to understand this intuitively, I'm not sure it's the case because I continue to see people saying, "Oh, wow. This is 30% yield. This is great." And then losing all their money. And it's so heartbreaking to see within DeFi.

But this is another correlary. This is another thing that I have just learned in my time in DeFi, which is that the only form of marketing that works is posting a high APY. It's really sad because you can have the most innovative crypto crypto protocol with the most genius founding team and that's not going to get anyone to deposit a dollar in your protocol. The only thing that consistently and reliably works is to say, "That guy's giving five. Okay, I'll give you six."

It works like every time and you can see why you have so many boom bust cycles in DeFi because six becomes seven becomes eight and you're just adding more and more risk into this because risk is a has to necessarily be proximate to the APY and it all ends up exploding and we see these boom bust cycles playing out in near agentic time in DeFi and it's really sad and really awful. Um, but this is the reason I'm going to assert that Tradfi stable coins need DeFi stable coins because Tradfi stable coins are not immune to any of these things I've learned in crypto in my time. There's exactly one exception that does not need to advertise yield and that's Tether. Tether gives zero yield and they have, as we saw, majority control of stable coins, 60% of the market. They got away with it because they have a ton of liquidity, but all the hundreds of new stable coins coming online can't afford to do that.

They need to give yield and Tradfi is a little bit limited in terms of how much yield can they give. Uh there's still a lot of debate going on this right now in Washington DC about if they're even allowed to give yield. But remember, I've asserted this is aximatic. They need to pay yield if they're going to get liquidity. And they can't really push it much beyond the risk-free rate.

So they have an easy solution which is to lean into the DeFi casino. Defi APIs are necessarily going to be high because DeFi is inherently risky. It's no other way around it, but it is very easy pitch to make, which is to say, okay, we can't really give you a lot of yield, but come to us, we'll be the bridge. The loosest slots in town are right over there. We can make it really easy for you to get there.

We can build partnerships. And we've seen it working because in a lot of ways this is how Tether actually achieved its dominance was by plugging into literally everything as the first major successful stable coin. They provided the bridge to access this crazy fun DeFi casino. And while I'm a little disappointed about this because it means that this boom bus cycle is going to keep playing out again and again. It's just going to happen with Tradfi.

like to hope that Tradfi players will be more sober and better behaved, but we've seen in the last two explosions that when everything got massive leverage cascades and the every it hit the fan, it was a lot of centralized TRDI players that got caught with their hand in the cookie jar. But there's another way that maybe that helps me sleep at night, which is to think of it not so much as they're just going to play the same games on a larger scale and everything's going to explode, but TRDFI needs Defi because DeFi can innovate. There's a massive amount of innovation happening in DeFi because people are willing to accept these losses, myself included, because if I see something interesting, I'm willing to throw a little bit of money in just the off chance that maybe it works out and if it does work out, it can be very big. And if nothing else, like we learn a lot. Um, and I'm not just speculating here.

This is something we've seen over many, many years within Curve. You know, Curve launched the stable swap AMM formula. a lot of theoretical math behind it. But as much as you want everything to be underpinned by theory, so much of this has to be done experimentally. You launch it, you think this should work, and then you see how people use it and you get the data from actual real world usage.

So stable swap was the first example. It's survived so many stable coin DPEGs remarkably. It's proven incredibly efficient at trading. And what we see generally is tradfi when something they see a lot of iterations having worked on chain they don't usually steal it they just lean into it and use it they and this is how tradfi and defi end up building bridges together so just a quick point on some of the innovation this was curve innovation from 5 years ago plug for what curve is bringing in 2026 continuing to innovate off of the foreign exchange trading FX swap it's a novel new pool which allows you to have this refueling mechanism that makes trading more efficient specifically for RWAs or foreign exchange asset pairs. And this is a chart showing that like as many simulations as you can run, stable swap had a single variable, the A parameter to optimize.

FX swap has dozens and as much as we try and like optimize it and get it looking perfect, every time we launch it, we get the experimental data and see how it does and we end up changing a half dozen of these parameters. But hopefully you're going to be able to build a nice efficient trading engine. And finally, we didn't get a chance to talk about it. Yield basis uh was slide not loading was able to build off of this architecture to be able to provide uh what they describe as no impermanent loss. Llama lend v2 is a lending market.

We don't have time to talk about the role of lending markets in DeFi, but pairing lending markets with stable coins also coming to curve finance this year. Uh, finally, the if you're interested in learning more about stable coins, particularly DeFi stable coins, the open stable coin index is a basket of the top decentralized stable coins governance tokens. This has been my brief explanation of why I believe TRDFI stable coins need DeFi stable coins. If you dispute any of this, if you have any questions, please come find me afterwards or follow me on X at Curvecap. And special thank you to the Curve team for five amazing years.

Thank you so much for everything.