Choosing the right stablecoin for your brand new blockchain used to be easy. Within the limits of your budget, you choose the stablecoin with the most adoption & liquidity.
That choice rule no longer applies when the universe of possible stablecoins has exploded. Previously you had to pick a USD stablecoin, now you can choose EUR, SGD, BRL or an increasing number of other non-USD currencies. The possible stablecoin types, as classified by their backing mechanism, has also expanded from three to four;
- Off-chain reserves, fiat & treasury backed (USDG, EURe)
- Collateralised debt position (CDP) backed (BOLD, dEURO)
- Algorithmic
- Strategy-backed 🆕 – functionally more like tokenised hedge funds – (USDai, USDe)
Then there are the issues about issuer trustworthiness, commitment to your chain, liquidity, financial incentives, cost, deployment timelines…
So how do you choose?
You should approach this from first principles and aim to answer a few fundamental questions:
- What’s the purpose of the stablecoin on my chain?
- Who is my target user base?
- What are the priorities of my users?
- What hoops are my users able & willing to jump through?
These questions are best thought in the context of three dimensions: alignment, UX, or revenue.
- Alignment is a measure of trouble the issuer is willing to go to for your chain. If you choose a stablecoin that only issues on your chain (e.g., Native Market’s USDH on Hyperliquid) they become your ride or die. Their whole business model is contingent on your success and they will, therefore, do whatever it takes to make your chain successful. These teams are agile but lack scale and experience in doing certain things. On the other end of the spectrum you have multi-chain issued stablecoins (e.g. USD₮0) for which your chain is only a marginal supply sink.
- UX is formed as the combined impact of on/off-ramping availability, ease of access (CEX, DEX, wallets), secondary market liquidity, bridging speeds & cost, backing type, and other elements a user faces in their usual journey. These differ on a chain-per-chain basis; a trading focused chain might care a lot about secondary market liquidity while a payments blockchain might care only about on/off-ramping costs & speed.
- Revenue is to some extent the new kid on the block; as competition proliferates, issuers now compete on net interest margin (NIM) share basis. Who can pay you (or your users) the most? The riskier the stablecoin strategy and the larger the scale of the issuer, ceteris paribus, the more they can pay you.
Analyse the fundamental questions through these dimensions.
- If the purpose of the stablecoin on your chain is to enable unruggable SGD-denominated DeFi, you will be looking at an immutable SGD CDP stable aligned with your vision. Revenue and UX are secondary.
- If you want to minimise European users’ frictions when onboarding to your payments blockchain, you are looking for optimal UX at the cost of alignment and revenue.
- If your users are able and willing to jump through big hoops to onboard in exchange for (perceived) big rewards, you are probably looking to maximise revenue which you can share back to users (and use for growth). Alignment and UX matter less.
The choice now comes down to blockchain-level strategy more so than anything else. The stablecoin(s) you choose are a core part of your go-to-market and matter a lot.