Following the "The Merge" transition, Ethereum has evolved into a Proof of Stake (PoS) blockchain, enabling users to stake their ETH. This not only secures the network but also allows them to earn staking rewards, with projected yields of 3-6% annually. Yet, certain challenges like a requisite of 32 ETH, the demand for specific server infrastructures to operate nodes, and other technical hurdles have resulted in platforms like Lido and Coinbase releasing products to streamline staking for users.
Despite these solutions, issues related to exit mechanisms, interest calculations, and other constraints have prompted the introduction of receipt tokens into the cryptosphere. When users stake their ETH via these platforms, they commonly receive receipt tokens, referred to as Liquid Staking Tokens (LSDs). For instance, stETH from Lido, rETH from Rocket Pool, and cbETH from Coinbase are representative tokens, primarily reflected at a 1:1 ratio to the underlying ETH value. Beyond mirroring the intrinsic ETH value, these tokens are also entirely fungible and transferable, offering liquidity for the staked assets.
After the Shanghai upgrade, the demand and utility of ETH LSDs have surged. As active contributors to this ecosystem, we are confident that LSDs will further mature, solidifying their position as an integral part of the Ethereum network. This conviction has driven our initiative to introduce ERD, a fully decentralized stablecoin protocol rooted in the utility of LSDs.
Existing Stablecoin Options
Stablecoins can broadly be divided into three categories based on a variety of factors, including underlying assets, collateral ratios, issuance mechanisms, and price stabilization models:
Fiat-Collateralized Stablecoins: Examples include Tether (USDT), USD Coin (USDC), and TrueUSD (TUSD). These stablecoins are backed by fiat currencies like USD or EUR, and centralized entities manage their issuance and operations, maintaining a 1:1 collateral ratio. This means that for every one stablecoin issued, there is one corresponding unit of fiat currency reserved as collateral.
Crypto-Collateralized Stablecoins: Examples include DAI, BitUSD, and sUSD. Cryptocurrencies such as Bitcoin or Ethereum act as their collateral. These stablecoins generally operate with higher collateral ratios like 1:1.5 or 1:2, signifying that for each unit of the stablecoin issued, 1.5 or 2 units of cryptocurrency are held as collateral.
Algorithmic Stablecoins: Examples include Basis Cash and Frax. They employ complex algorithms to ensure price stability, often using elastic supply strategies and incentive models to balance supply with demand.
The Case for USDE
Stable assets are cornerstones within the Ethereum ecosystem, representing billions in value. The dominant players in this sphere are fiat-collateralized options like USDT and USDC. In contrast, decentralized contenders such as DAI and Frax represent only a small fraction of the overall stablecoin circulation, indicating a market leaning heavily towards centralization.
While centralized stablecoins offer certain conveniences, they also face challenges. The cryptocurrency market is fraught with volatility and ever-evolving regulatory landscapes. In the past, USDT and USDC have slipped from their pegs, triggering widespread concern. This highlights a fundamental need for a genuinely decentralized stablecoin within the Ethereum ecosystem that merges scalability with full decentralization.
Understanding this gap and motivated by the growing traction of LSD tokens, we conceived USDE: a fully decentralized, capital-efficient stablecoin rooted in LSD tokens. We believe that this innovative approach can provide stability, efficiency, and decentralization, ultimately serving the growing needs of the Ethereum ecosystem.
We believe in USDE. A true reserve asset -- On Ethereum. By Ethereum. For Ethereum.