Stablecoins on the Market

Types of Stablecoin

Lybra Finance stands as the world’s first Omnichain LST-backed, yield-bearing stablecoin solution. In doing so, Lybra Finance creates the crucial profit-generating utility that LST's require to fully realize their enormous potential.

Here's how this is accomplished:

Stablecoins, a subset of cryptocurrencies, are designed to mirror the value of a fiat currency, such as the USD, on a 1:1 basis. A significant portion of the portfolios of most DeFi users is often held in stablecoins, given their predictable store of value and provision of liquidity. However, stablecoins pose a considerable challenge for their holders: they do not offer any interest, leaving them susceptible to persistent devaluation due to USD inflation.

In the current climate of high inflation, it is crucial for stablecoin holders to receive interest on their holdings to sustain their purchasing power. The existing generation of stablecoins lack the mechanisms needed to provide interest income to its holders, due to the structure of their issuance and collateralization mechanisms.

There are currently 3 types of stablecoin available on the market today:

1. Fiat-Collateralized Stablecoins:

   Fiat-Collateralized stablecoins are stablecoins issued with fiat currencies (such as USD, EUR, etc.) as collateral, such as Tether (USDT), USD Coin (USDC), and TrueUSD (TUSD). These stablecoins are usually issued and managed by centralized institutions, and maintain a collateral ratio of 1:1 in general, which means that for every stablecoin issued, one unit of legal currency needs to be pledged as collateral.

2. Crypto-Collateralized Stablecoins:

   Cryptocurrency-Collateralized stablecoins are stablecoins issued with cryptocurrencies (such as Bitcoin, Ethereum, etc.) as collateral, such as Dai, BitUSD, and sUSD. The collateral ratio of these stablecoins is relatively low, usually 1:1.5 or 1:2, which means that to issue every one of a stablecoin, 1.5 or 2 cryptocurrencies need to be pledged as collateral.

3. Algorithmic Stablecoins:

   Algorithmic stablecoins are stablecoins that use algorithms to maintain stablecoin prices, such as Basis Cash and Frax. The price maintenance mechanism of these stablecoins is relatively complex, usually introducing elastic supply mechanisms and incentive mechanisms to adjust supply and demand and maintain price stability.

None of these options provides a feasible mechanism for providing significant interest income to holders. This is because the underlying collateral assets, be it fiat or cryptocurrency, do not themselves accumulate interest whilst sitting idle as collateral.

This is where Lybra Finance’s interest-bearing stablecoin, eUSD comes in.