A Sustainable Model for the Stablecoin Market

Over the past few years, the emergence of several decentralized stablecoin projects have created a highly intense, and competitive environment with the goal to gain market share. This competitive dynamic has resulted in projects offering more ambitious promises and yields than the next player should users choose to invest. To make matters worse, the lack of a clear leader and historical best practices have prevented users from doing their own research and discerning effectively between the influx of new stablecoin projects.

Individuals become attracted to stablecoin projects offering high yet unsustainable liquid staking APYs of at times, over 20% - and when the bubble bursts, the more discerning retail investor would have learnt a lesson, and the less discerning would have lost a sizable chunk of their life savings.

Unsustainable projects can deeply hurt the confidence of both retail and institutional investors, and also bring about unwarranted regulatory scrutiny that detriments the development of decentralized stablecoins. In a bid to acquire users in the short-term, many projects have neglected their long-term viability, and that has undoubtedly set back the goal of mass market adoption significantly.

After highlighting the importance of sustainability within the stablecoin industry, it would be important to note that the current stablecoin industry is not all that dire, with some relatively successful projects gaining significant traction. An example of a project that has achieved relatively high adoption and multiple use-cases would be the MakerDAO and its crypto-backed stablecoin, DAI. With a current market cap of about USD $7.5 billion (as of July 2022), DAI has become a household name amongst decentralized stablecoin projects, leveraging on a safer, over-collateralized model to protect its peg. With multiple growing use cases in GameFi, working capital and cross-border transactions, to name a few, DAI appears to be the frontrunner within the stablecoin industry. Needless to say, it does not mean that the MakerDAO is perfect without room for further improvement. While MakerDAO has achieved a decent balance of stability, safety and profitability, there is more that can be done to further optimize this balance.

On top of that, most of these projects, including MakerDAO, are built on the Ethereum blockchain, which still utilizes a proof-of-work concept that is arguably both inefficient and expensive. The BNB Chain has the potential to offer the same maturity and scale of Ethereum, but with lower cost and far greater efficiency. Yet, there is currently still a lack of a dominant stablecoin that is decentralized and safe for users within the BNB ecosystem. This therefore creates a gap in the market for a sustainable yet lucrative stablecoin project which Helio Protocol plans on closing.

The intent behind Helio Protocol is to propose a sustainable solution to the capital efficiency problem that over-collateralized stablecoins (such as DAI) typically experience by allowing users to leverage their funds with a collateral debt position (CDP). Through a combination of liquid staking, the functionality of the MakerDAO model and additional liquidity from LPs on DEXs, Helio protocol will avoid issues such as frozen funds (fiat-backed) or held value loss (algorithmic) because of price instability.