Sid Shekar - Optimising Stablecoin Trading on Decentralised Exchanges

baby [Music] all right so we got just a few more events on day one of the world's first stablecoin summit and everyone knows that there's absolutely no centralized publicly traded company that's more based than coinbase so we're very excited to have Sid shakar who is um uh Chief blockchain research officer is that right the chief blockchain research officer at coinbase is going to be joining us Sid it's your stage thanks so much um yeah super happy to be here um it's been a great crowd so far very nice conversations um yeah so today I basically wanted to cover um some of the data that we've been seeing around stable coins in their usage in defy in Texas in particular first a little bit about me um yeah I've been in crypto for quite a few years now I previously I started a blockchain analytics company called token analyst and uh we you know we got acquired by coinbase in 2020 and I've been leading the coinbase blockchain research team ever since we focus mainly on what's happening on on chain you know where our users actually interacting what kinds of apps are they interacting with how do these new chains work and more recently been focused on layer twos in particular and and the usage of stable coins within them um I'm personally also very passionate about stable coins in general I paid for my trip here paid for the uh for the trains Etc with stable coins I try to use stable coins as much as possible and so very interested in how they're actually used in in real world applications as well but for this presentation really wanted to dive into the data and what it actually says about utility uh what's how they're being used today on chain and what the data says um and yeah starting off with the high higher level big picture right which is that you know um stable coins has been growth in stable coins has been the story of this entire cycle uh since 2020 you can see the graph over here uh with usdt and usdc growth um it's been an upward trajectory throughout the entire uh period of the past few years you know with a little bit of decline here and there but generally it's an upward Trend uh and and that Trend kind of manifests itself on chain as well with with the different blockchains that we've seen uh usdts is you know this is the state of the ecosystem currently in terms of stable coins um and their size but uh usdc usdt obviously dominating but we've seen you know a tremendous rise in Alternatives come up over the over the past few years with novel designs especially today that we've heard a lot from with some of the different talks um in the summit and and on chain um just measuring how many of these stable coins end up on these different chains pretty interesting interesting to see that you know usdc and usdt both obviously dominant on ethereum but a tremendous amount of usdt on Tron as well which is a very interesting chain um and you know oftentimes you know misunderstood sometimes because you know various reasons but what's interesting to note is that ethereum even despite its very high gas fees still holds the majority of stable coins and in terms of actual user address Behavior what we're seeing is a majority of this of this you know value that's on ethereum is held by addresses that hold over 50 million dollars worth of trustable coins so these are very large players moving around these assets whereas this pictures you know somewhat different on Tron in terms of sheer number of addresses holding small amounts of sable coins it's significantly higher and of course it's of course significantly uh cheaper as well which is pretty interesting to note that you know peer-to-peer like stable coin transfers um as a unit of measurement on Tron it's pretty high and you can see that of course with the extremely large uh amount of usdt that's that's ontron and then of course down the list we go with the with the onslaught of layer twos which are rapidly gaining traction so um pretty interesting Trend that we've noticed and and hopefully something we see uh grow with uh layer 2 usage especially with the launch of Base um coinbase uh Layer Two which the goal is to bring you know more users on chain and more users using stable coins and other assets um uh to you know enter the crypto ecosystem um comparing different types of stable coins this is another data point we've been looking at pretty actively and uh the big uh kind of trend here we've seen as you know pegged USD is is the dominant form of stable coins in general um and it's a trend we've seen you know time and time again and uh it's all it's almost idiosyncratic in a way because you know part of the reason for stable coins is to maintain some sense of stability but uh um you know it's very surprising that we haven't seen the growth and adoption in terms of other forms of packed currencies globally especially in global jurisdictions where you know stable currents can actually be useful um uh and you know we can potentially Peg to different forms of assets we just had a discussion now about uh flat coins where this is one of the initiatives that we want to encourage on base uh to have folks deploy where a coin that tracks inflation right um how do we track that efficiently in in the form of a coin so this is a dominant trend that we've been noticing you can see in the chart it's all blue it's all USD based stable coins that's the current status hopefully that changes in the coming few years we'll see um and because it's all U.S based you know there's a question you have to ask ourselves uh what's the you know actual usage in terms of holding a stable coin over holding normal dollars uh of course there's uh the global accessibility the ease of transfers ease of usage composability and defy Etc but a big part of it is actually gaining the yield that comes from holding stable coins and holding and using stable coins in crypto that drives a lot of crypto today which is yield and yield is generated from inflation yield is generated from people borrowing assets and yield is generated from genuine utility that's that's driven by the usage of these crypto assets so just comparing in terms of on-chain yields um some of the the biggest uh asset pools that we've seen with over 50 million dollars in in value and their yields something that's been interesting that's that's popped out is uh just the prevalence of derivatives uh which are driving the majority of yields today obviously in the bull market we saw pretty a pretty large yield rates on just basic stable usdc and usdt on lending markets like Ave and compound but with with the onslaught of of the past uh year and a half and and kind of declining volumes and declining borrowing interest what we've been seeing is leveraged products and and more specifically uh liquid staking derivatives driving a lot of the yield with uh utility of native eth inflation um and you can see it in some of these products here as well um where you know we're kind of competing with with the you know the base rate but not really uh you know CRV USD is one big example where we're you know coming pretty close but uh it's uh it's not uh you know it's not exactly clear how to how to gain that kind of yield just from Base usdc today but what most people are missing in fact is uh the tremendous amount of yield uh that still exists today in on on decentralized exchanges so um this is this is kind of the big uh uh aha moment that we had when we were examining dexas today which is um the potential of users to kind of generate yield based on volatile usdc pairs so you can see here obviously the majority of the volume on on spot dexas today goes to eat usdc and the on the kind of emerging Trend that we're seeing is how to harness yield for crypto as a whole based on volume on these volatile pairs half of this capital is usdc and and this volume is generating yield for that usdc itself of course when you when you frame it on the in the form of a spot decks you know you you kind of lose out with impermanent loss in these in these volatile Pairs and you have to hedge for that somehow but with the sheer amount of volume that's flowing through that I think that's one of the biggest areas that potentially has room for expansion which is how do you generate stable yields for stable coins just with stable coins using the volumes that are going through these spot pairs so um you can see that even compared to the volumes of uh of of a lot of these other pairs is uh just just the sheer scale of ethusdc is is so massive um that you know that's that's kind of the big takeaway that we've been trying to see especially across chains here it's a big Trend that we're seeing with the green here in arbitrum ethusdc and arbitrum it's like a big big um point of growth for us um and so uh yeah so that's like uh just a show of hands here how many people have actually like used arbitrum oh wow okay pretty pretty big that's uh that's great how many of you has actually traded usdc on arbitrum interesting that's awesome um so yeah this is actually a huge stat that we recently saw is um the amount of trades that are sub ten dollars of ethusdc on arbitrum is more than almost any chain that has ever existed uh which is pretty interesting as a takeaway um which is something hopefully L2 usage drives which is just the sheer scale of low volume trades which is just retail trades hopefully um that are enabled by lower fees uh deep liquidity and and and drive volume and drive yield for crypto which is what drives the entire ecosystem forward right so [Music] um yeah what can be improved right yields are yields are one big area but other areas that we've been seeing include uh stable claims held on bridge contracts this is a huge area of improvement obviously very sad what happened with the multi-chain exploit earlier this month uh where you know 120 million dollars was it was exploited but on custodial Bridges um having a lot of stable coins held there and we need to really assess this trust assumptions that we're having on these Bridges we can see here you know obviously some of these are non-custodial some of these are are custodial but we have a tremendous amount of stable coins on bridge contracts today and there isn't visibility into the ecosystems where the stable coins are being locked and how they're being minted and then the mechanism behind you know how they're actually being unlocked and where they're being used I think this visibility can really improve in the in the ecosystem as a whole um with uh with like just more data and more uh you know transparency and how the bridges actually work we we had you know layer zero um earlier here today but uh several of these Bridges I think they're working on kind of a unified system of of having you know more transparency especially into stablecoin usage across chains so one of the biggest stats we've seen is on Layer Two is the flow of stable coins from arbitrum to optimism is actually the biggest flow today on chain in terms of bridge usage so Bridge usage is a big area of improvement just in terms of transparency um bridged versus canonicals table coins is another big uh area specifically with in terms of you can see these pools here usdc usdc USD to usdt this is something a lot of users have complained about actually uh when they're onboarded to D5 where they see these pools and it's confusing a because you feel like you have the asset and these assets are integrated into dapps but the reality is there are different flavors of the same stable coin on these different apps on these different chains right sometimes there's a canonical stable coin now with usdc there's the cctp which has the official usdc but there's also the bridged version of usdc that gets integrated into these dapps how do we kind of standardize the canonical versus bridged versions and and how do we represent them in ux's and uis so that it's pretty clear to users what's the actual asset that they're going to be using in these products um you know adding an e after it or or simply not having a logo for the asset are often is the status quo today right it's something we're really thinking about how do we improve this and uh with the proliferation of of all these layers and all these chains um especially with you know a layer 2 like bass coming out we're trying to think through more carefully how we can represent this on the dapps that are live on chain so that a we don't have this kind of confusion but also be we can have you know clean liquidity clean uh user experiences for people to actually make use of stable coins on chain um and finally this is uh just this is a generic issue on with with decentralized exchanges in general which is just uh imbalanced and fragmented liquidity across all of these chains I think by the end of this year we're going to have over 50 or 60 different new chains that have come out with these new uh roll-up initiatives um and the Big Challenge there especially on exchanges that have volatile pools as well as how do we have kind of balanced liquidity across all these pools and and uh you know normalize for the impact of of of fragmented liquidity right this is a big big concern for us uh across the ecosystem um you can see these examples here these are just some of the examples of dexes that we've seen across different chains some of them have low liquidity some of them have pretty high liquidity but uh a big Trend that we've been seeing is an imbalance in terms of even Stables that are supposed to be pegged to the US dollar uh that are not arbitraged away and that actually impact uh end users um some of this Arbitrage is actually hard to do because Bridges sometimes take you know a long time to bridge out of so it's not a clean Arbitrage so you have imbalance like this last for days and sometimes weeks that are not taken up um and some of this is kind of structural to how this ecosystem is evolving how do these stable coins move into these different ecosystems but it's something we're also thinking about along with the previous issue of canonical versus Bridge stable coins so these are kind of the issues overall that we're seeing with the ecosystem and uh obviously it's the way that the ecosystem has evolved that resulted in these kinds of issues but uh all in all I think uh you know the industry is still in a positive light we're still using stable coins more and more a data point we recently spoke about is uh P2P transfers of stable coins has been on the increase especially in layer twos across 2023 which is a huge positive trend that we're seeing so it's not all doom and gloom for sure it's it's positive um but yeah these are some structural issues I think if we if we get to solving um and like work towards solutions for them you know we'd like to see apps that make use of you know clean interfaces and like solutions that can address some of these issues and hopefully Drive the space forward [Applause] any questions how does this fit in with base with strategy for bass yeah so uh obviously usdc and stablecoins are an integral part of you know coinbase in general and with base uh the big thing we're trying to do is we have these four requests for apps that we want to see built but in general we want to onboard more users on chain and have them use D5 for the first time and and we have educational you know um pieces out there for how folks can use wallets and interact with interfaces on chain but with these kinds of issues that we've been seeing across the ecosystem we just want to simplify the user experience as much as possible and these are all issues that are solvable right through kind of simplifying the user experience potentially having uniform ways of interacting with these dapps and showing what's canonical what's bridge what's not um and then also encouraging uh genuine forms of yield on chain you know so these are all ideas we want developers to start building on on base to resolve some of these but then also some of the some of the other issues outlined oh no not at all I mean this base is completely I mean it's a separate if you want it to be very open um to any developer that wants to build an app so not not impactful at all yeah foreign thanks oh you got one more yeah it's it's a tricky question I mean it's tough to say for sure but part of it is just because the bridge latency is hard to actually bridge in and out of these chains um so you know you're waiting sometimes a day or two to withdraw uh or you have to come from a centralized exchange and so if we're purely in an on-chain only world it's just hard to do that right and then ultimately the end user that's transacting in these pools suffers and sometimes they don't know what price they're getting um so yeah it's a tough one yeah oh yeah that's a great question um I I yeah like I mentioned before actually a very often overlooked form of yield today is in these volatile uh pairs on on decentralized exchanges um so um there are these new protocols coming up that have vaults uh that take usdc or take eth and then they deploy it on decentralized exchanges in a smart fashion to generate yield for you so currently the going rate for usdc yield even on ethusdc on uniswap on arbitrum is over 36 percent on on just base usdc if you can hedge the volatility of eth right so it's pretty overlooked today so I think that's that's something to look into all right thank you [Applause]