If a truly crypto-native PayFi platform or stablecoin project emerges in the market, I believe it will only appear within the Solana ecosystem.

Host: Yaoyao, Solana Foundation

Guests: Jason, Co-Founder of Solayer; Anna, Founder of Perena; Yetta, Investment Partner of Primitive Ventures; Zixi, Investor of MPCI; Chris, Founder of Unipay

This roundtable specially invites official members of the Solana Foundation and various builders within the ecosystem to discuss "The Development and Prospects of the Solana Stablecoin Track."

Host: Let's have the guests introduce themselves.

Jason: Hello everyone, I am the co-founder of Solayer. I got involved in the crypto field during high school, but I truly entered this space in college. The crypto market is highly globalized and very sensitive to technology, so I have been exploring in the crypto field.

Anna: I am the founder of Perena. Previously, I was responsible for stablecoin operations at the Solana Foundation. I initially worked on payment-related projects and later realized that people had no stable assets in their wallets for payments, so now I am working on stablecoin infrastructure. We are currently supporting Solayer's sUSD, and we may have more information to share in the coming days.

Yetta: Hello everyone, I am Yetta. We started betting on the stablecoin track back in 2017 and 2018, including TUSD in 2018, algorithmic stablecoins from the last cycle, and now we have Perena and Ethena in our portfolio for this cycle. With my financial background, I have always been very interested in stablecoins.

Zixi: Hello everyone, I am Zixi. I am currently responsible for crypto business at Matrix Partners China, and I also have a smaller fund to invest in some early-stage projects. Recently, we have been focusing more on AI, and another area is payments. However, this year, I have seen many stablecoin projects and discussed various compliant fiat-backed stablecoins in Hong Kong. After our discussions, we calculated and found it quite challenging to invest due to some practical concerns.

Chris: My name is Chris. My partners and I established Unipay, an infrastructure for on-chain credit payments. Over the past 10 years, I have participated in the design and development of anti-money laundering mechanisms and have worked on traditional e-commerce payment channels, as well as DeFi protocols.

Host: Compared to the last cycle, what innovations do you see in the mechanisms and models of stablecoins this cycle? Which stablecoin players in this cycle are you particularly focused on?

Jason: First of all, I think there is still a lack of stablecoin projects in the Solana ecosystem. I would like to compare the differences between sUSD and USDe. First, all the designs of sUSD follow one principle: simplicity. sUSD is a synthetic stablecoin supported by RWA. Secondly, sUSD has dedicated market makers to provide a pricing mechanism, allowing for T+0 direct settlement, making the user experience very smooth and simple. The entire mechanism is very simple and secure, but the annual yield is relatively low; we can offer around 4.4% to 4.5%. The yield comes from the RWA collateral of U.S. Treasury bonds behind sUSD, so the risk is also very low. Ethena, on the other hand, is a hedge fund that provides services externally and tokenizes its services. Ethena offers very high returns but also comes with very high risks. sUSD cannot be called innovative; it is more about risk-free returns, and our returns are relatively stable, directly linked to Treasury yields. Our risk is lower, and it is transparent on-chain.

Anna: I really appreciate the sUSD launched by Solayer. Although it is not the first RWA-backed stablecoin, its mechanism design is very good. In the past two years, many stablecoins linked to U.S. Treasury bonds have emerged, but they often fail to achieve related functions due to their relationships with market makers and design issues, leading to a poor user experience. Since U.S. Treasury bonds are securities, if you want to return interest to users, you need to do it in a creative way. First, the industry generally agrees that purely algorithmic stablecoins may not be a correct stablecoin solution, and now everyone is striving towards U.S. Treasury-linked stablecoins. However, in terms of actual use, the vast majority of people are not using these for value storage or risk balancing. Thirdly, I think some of the infrastructure for stablecoins still mainly exists off-chain, while on-chain infrastructure is still relatively lacking. This is why I have other projects considering building pure on-chain stablecoin infrastructure. Currently, I have not seen a good combination of off-chain and on-chain infrastructure; some cross-chain bridges operate almost entirely off-chain, while Perena and Maker are basically purely on-chain, with almost no practical use or application off-chain.

Yetta: In this cycle, the entire industry is actually moving towards the integration of on-chain and off-chain and more real application scenarios, rather than just complex designs of stablecoin mechanisms like in the last cycle.

Zixi: I believe Ethena is the most perfect project we have seen in the last two to three years, without exception. We did not invest in its first round of financing due to a lack of quota, but we participated in the second round. The income from stablecoins is actually related to asset management scale and interest rates, meaning stablecoin developers either need to grow their asset management scale or increase interest rates. Projects that grow asset management scale include Tether and Circle. The other direction is to increase interest rates like Ethena. We analyzed the funding rate arbitrage data for Ethereum over the past 3 to 4 years and found that only during deep bear markets did the funding rate remain negative for 15 consecutive days, meaning that short positions outnumbered long positions, and short positions had to subsidize long positions. This means that for over 300 days in a year, the funding rate is positive, and overall, it is still profitable.

Funding rate arbitrage is not something everyone can do; only large market makers can engage in this. Ethena has decentralized what was previously only achievable by centralized institutions. Ethena is currently the fastest stablecoin project in history to reach $100 million in revenue, achieving this in just 251 days. After subsidizing user staking interest, the company can also provide various other subsidies. In the next 2 to 3 years, the market may be in a long-term low-interest-rate environment, and I am not optimistic about assets supported by TVL. We calculated that once you need to cooperate with some large market makers or exchanges, you need to share at least 20-30% of the gross profit; if it’s a large exchange, you need to share at least 60% of the gross profit for them to support your listing.

After our calculations, we found that at least $3 billion in asset scale is needed to break even. Moreover, there will be many strong compliance costs afterward. Of course, after doing this calculation, I still think it is very unreasonable, meaning that stablecoin projects with less than $3 billion in asset scale are actually still losing money.

Chris: Compared to the last cycle, we can see some significant changes in stablecoins regarding collateral assets and arbitrage mechanisms. On one hand, there is diversification of collateral assets, and on the other hand, the integration of off-chain and on-chain arbitrage provides new possibilities for stablecoin price anchoring. For example, in pure DeFi, I want to mention our upcoming Liquid V2 and multi-collateral solutions, where users can optimize price adjustments through custom interest rate markets and some new methods. Compliance pathways and liquidity optimization are our key concerns, especially in reducing costs and improving efficiency. I am currently more focused on payment routes, as people are beginning to realize that settlement and channel businesses are the true sources of profit, rather than buying Treasury bonds.

Host: Primitive Labs invested in Ethena, which has now expanded to the Solana network, and also invested in Perena. Yetta has also done a lot of research on stablecoins. When did you start looking at this track? What aspects do you mainly evaluate for projects in this track? What types of projects do you think have potential and space?

Yetta: We started providing support during Ethena's first round of financing. The entire mechanism of Ethena gave us a refreshing feeling. Ethena found a way to help stablecoins find better yield opportunities through off-chain hedging strategies, which produced a good yield after historical data testing. Ethena coincidentally caught the bull market from the second half of last year to April this year. Additionally, their team's execution capability is very strong. Whether it’s fundraising, getting USDe into various DeFi ecosystems, or becoming a trading pair on centralized exchanges, their execution has been very effective.

When looking at stablecoins, I think the most critical factors are utility and liquidity. Utility refers to what you want to use the stablecoin for and what scenarios it targets. The utility of Ethena is to help people earn higher yields. Initially, Tether's utility was to serve as a currency pair, similar to a unit of account. Later, during DeFi Summer, USDT became in demand for liquidity across various chains. Then it served as a shadow dollar, existing in transactions in inflationary environments, economic sanctions, and various gray areas. Therefore, the utility of stablecoins must be clearly defined. Secondly, liquidity must be considered, as stablecoins are circulating currencies, so their moat comes from liquidity. The more extensive your network is, the more upstream and downstream users will use your stablecoin, and its moat will be very deep.

Zixi: For example, I am currently working on a stablecoin project where the income mainly comes from overnight reverse repos of U.S. Treasury bonds, aiming for an overall asset scale of $1 billion. The current interest rate for overnight reverse repos of U.S. Treasury bonds is about 4.5% to 5%. Ideally, 100% of the assets would be in circulation, but that is not the case. In some companies we researched, the actual capital utilization rate is not 100%; achieving 70% to 80% is already quite good. For some large market makers, they may take 50% to 60% of the stablecoin income, and once you collaborate with exchanges, your gross profit may be even lower. After calculating, the pure income for a year might be around $20 million to $30 million. Additionally, considering that the next two to three years will likely be in a low-interest environment, you cannot guarantee that the overall interest rate will remain at 4.5%. When the interest rate drops by half, the overall asset scale would need to double to maintain an annual income of $20 million. Furthermore, compliance and labor costs are also quite high, so in the end, your annual income of $20 million may not even achieve a break-even point. Circle has not gone public yet, and if you follow this logic, you will find that Circle is not very profitable. Therefore, I am quite pessimistic about equity investments in stablecoins. However, we have seen some new uses for stablecoins, especially in countries with underdeveloped financial markets like Latin America. For example, traditional banks in Latin America perform poorly, with cross-border payment friction around 2% to 3%, taking about 2 to 3 days or even longer. We have seen some companies actually doing cross-border payments in Latin America. The entire on-chain transfer process may only take a few minutes or even less, and even if you do not have a license, OTC funding friction can be as low as 0.3% to 0.4%. We have also seen Circle expanding their related business.

Host: Solayer recently launched sUSD, the first RWA-backed stablecoin asset. What are the unique points of sUSD compared to other stablecoins? Why did you choose to enter the stablecoin business?

Jason: We are not a stablecoin company; we are a re-staking platform, similar to the re-staking platform EigenLayer based on Ethereum, while Solayer is a re-staking platform based on Solana. Compared to Ethereum, Solana has faster transaction speeds and lower costs, and its scale is large enough, so we wanted to build a re-staking platform on Solana, sharing security mechanisms with some on-chain and off-chain projects. We believe there is a significant demand for this. We also identified the need for low-risk yield stablecoins, which led to the launch of sUSD. For sUSD, we want to develop it as an independent branch because it can not only be used for re-staking but also circulate within the Solana ecosystem. sUSD is not a stablecoin created entirely by Ondo; we are essentially creating a decentralized channel protocol, and the market makers using our channel protocol are the true issuers of the stablecoin, meaning user funds do not pass through our hands. I believe the market indeed needs stablecoins like sUSD that can provide risk-free yields. Our main focus is on on-chain liquidity, allowing more people to use sUSD.

Host: Perena is the infrastructure for stablecoins, providing a liquidity layer for stablecoins across different networks and platforms. Anna, you previously handled stablecoin operations at Solana. What scenarios and needs led you to consider creating the Perena product? What are Perena's unique advantages?

Anna: What we can foresee is that new stablecoins will continue to emerge in the future, even in a low-interest and low-margin environment, as many large institutions will indeed enter the space. When a new stablecoin appears, it will inevitably face the challenge of competing with native stablecoins in the market, making it very difficult to open up the market initially. Perena's idea is that any new stablecoin that comes in can be placed in Perena's one-way liquidity pool, while the liquidity on the other side is provided by our centralized stablecoin pool, which currently has a liquidity scale of $3 billion and may grow to $5 billion or even $7 billion in the future. Secondly, I hope that all stablecoins in the future will not be solely backed by U.S. Treasury bonds but will have diversified collateral. We can aggregate other on-chain or off-chain high-liquidity assets for collateral, allowing anyone to deposit for yield, as well as collateralize for loans, etc.

In traditional scenarios, when you collateralize a high-liquidity asset for a loan, you may need to wait three months, during which the lender or bank will ask you many questions or conduct other investigations. However, when collateralizing for a loan on-chain, as long as you are collateralizing a high-liquidity asset, you can immediately receive the corresponding loan. We hope to enable anyone to better use stablecoins and earn some deserved interest in the process. For example, as USDT holders, we are also bearing the risk of Tether's collapse, and Tether should provide us with some interest, but it actually does not.

Chris: The project we are working on is called Unipay, which allows users to generate on-chain credit through multi-asset staking. The generated on-chain credit is similar to a stablecoin, but it has polymorphic attributes; it can be pegged to any currency. For example, users can stake any equivalent interest-bearing asset to obtain an equivalent dollar amount. This credit limit can be directly transferred to a wallet address or bank account through our Unipay. We are currently open-sourcing a series of payment SDKs to help users utilize our on-chain credit payments in different scenarios, and we hope to turn it into a stablecoin abstraction. Earlier, we were focused on building on-chain compliance infrastructure, aggregating some on-chain and off-chain behaviors to create a credit score for each address. Based on this credit score, we are developing compliant privacy transactions and unsecured lending products. Unipay is built on compliance infrastructure, and we are now working to advance some banking-related businesses, such as distributing assets more reasonably through credit and T+0 settlement.

Host: In the current competitive landscape, what opportunities exist for stablecoin businesses in the Solana ecosystem?

Jason: As we mentioned earlier, RWA-backed stablecoins are very challenging to develop, but we are willing to try on Solana mainly because we see a good opportunity right now. First, stablecoins align very well with our project, and we know there is user demand, so we want to see if we can capture the market in a short time. The market response has also been very positive when we connect with other protocols and wallets. Secondly, a lot of capital is currently entering the Solana ecosystem, making it relatively easier to gain capital support for projects on Solana. For example, the Solana Foundation has provided significant support for us. Thirdly, we have a complete API system and account system, making it very easy to integrate when new projects emerge, which is very important for a new project entering the market.

Anna: From the data, the scale of Solana stablecoins is far less than that of Tron and Ethereum, but I still hold a very optimistic attitude. From the perspective of payments and applications, Solana has much greater potential and usage space than Ethereum. I also do not want to see Solana become just a USDC chain; if a public chain only has one stablecoin, it will face risks of regulation and centralization. Optimistically, I believe many stablecoin issuers will enter the Solana ecosystem in different ways, and a small portion will find unique use cases, expanding the entire market. In this case, both Solayer and Perena can allow users to more easily access different types of underlying stablecoin assets and use them in a decentralized manner.

Yetta: Compared to stablecoins, I believe PayFi is more important. First, stablecoins are a very challenging track, but PayFi involves capital borrowing and improving capital utilization rates, which is a strong demand. Once PayFi is established, the emergence of stablecoins will be a natural progression. We believe Solana has great prospects in the PayFi field, and in this process, native PayFi projects and stablecoin projects suitable for the Solana ecosystem will definitely emerge.

Chris: If a truly crypto-native PayFi platform or stablecoin project emerges in the current crypto ecosystem, I believe it will only appear within the Solana ecosystem. In places like South Africa and Latin America, there are many gray areas in transfers and cross-border payments, which present good arbitrage opportunities. I believe that using Solana for cross-border settlements will promote the development of local PayFi and stablecoins.

Zixi: Doing payments in underdeveloped countries is still very meaningful, but the overall scale of PayFi in underdeveloped countries will not be very large. We systematically looked at about seven or eight projects, and the income was not as substantial as we imagined. Additionally, replacing traditional payment systems with U payments in a new market poses significant challenges; overall, we are still in a very early stage.

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