Stablecoin Management and Collateral for GHO

Reading time saved: 8 minutes

1 replies, 2248 views, 10 likes


Khan from the Centrifuge team and Steakhouse Financial are developing a framework for building and scaling a stablecoin, focusing on balance sheet management and collateral allocation strategies. They emphasize the potential of Real World Assets (RWA) as a tool to manage asset-liability exposure, provide diversified yields, and serve as collateral backing, while also highlighting the complexities of onboarding RWAs and the importance of a robust RWA investment strategy.

The discussion initiated by Khan from the Centrifuge team revolves around the potential of Aave GHO for Real World Assets (RWA) and the challenges and opportunities in the stablecoin market. The team, in collaboration with Steakhouse Financial, is developing a framework for building and scaling a stablecoin, emphasizing the importance of balance sheet management, collateral allocation strategies, and a data-driven approach. Stablecoins are seen as a foundational building block in the crypto economy, but managing them is a significant challenge. The key to long-term sustainability and growth for stablecoin issuers is balancing these assets against the duration of their issued liabilities1.

Khan introduces the concept of RWAs as a tool to manage the asset-liability exposure of a stablecoin and provide uncorrelated revenue streams. He notes that RWAs can provide diversified yields for crypto-native stablecoin issuers and can be a source of collateral backing. He uses MakerDAO as an example, stating that they are already generating 60% of their revenues from RWAs. He also discusses the competitive nature of the stablecoin market, stating that stablecoins will be measured across utility, trust, and return provided to holders. He believes that RWAs can be a building block for addressing specific objectives and opportunities within these three components1.

Khan further explains the complexity of onboarding RWAs, stating that it requires deep financial and legal expertise. He emphasizes that portfolio construction is crucial when allocating stablecoin supply against the possibilities of RWA collateral. He also discusses the two primary methodologies for making investment decisions: an active or passive approach. He notes that while passive strategies can be effective under favorable market conditions, they may not always be suitable due to the unique complexities of off-chain integrations and ever-changing DeFi market sentiment1.

Khan emphasizes the importance of a robust RWA (Real World Assets) investment strategy in the competitive market of currency competition. He highlights that active investing strategies are complex and require a high-quality risk management practice, long-term horizons, and a deep understanding of the market. He also stresses the need for bringing assets on-chain as a critical aspect of an RWA strategy, citing three main advantages: improved trust assumptions, transparency, and the ability to leverage the interoperability of on-chain assets. He believes that real world assets can be a critical part of a stablecoin balance sheet and require an on-chain approach to realize value and effectively manage risk over the long-term1.

Steakhouse Financial is introduced as a company with unique experience in stablecoin management, real-world assets, and cryptoeconomics. They have helped pioneer real-world structures that have propelled MakerDAO to a leading position as a decentralized USD-tracking stablecoin with over $650m in real-world asset investments allocated to date. They only work with protocols with whom they share the aim of meaningfully improving people’s lives by building a better, resilient, decentralized financial system1.

Centrifuge is presented as a decentralized protocol for the financing of real-world assets. It was the first to bring real world assets on-chain with Tinlake on Ethereum and the first to collateralize RWA into a stablecoin through integrating Tinlake with the MakerDAO protocol. Centrifuge is designed to support the tokenization and securitization of the most complex asset classes, bringing the necessary off-chain components into the on-chain ecosystem1.

Khan discussed the Centrifuge facilitator perspective for Aave GHO, which is a DAO-to-DAO collaboration that provides a scalable conduit for RWA collateral. The Centrifuge ecosystem is being developed to provide the necessary technical contributors, asset issuers, and service providers to support a portfolio of RWA that can meet the needs of a stablecoin using assets across a range of asset classes1.

Hergen responded positively to Khan's post and emphasized the importance of diversification, especially considering the cyclical nature of crypto and its sensitivity to interest rates. He provided a context where crypto-based yields were more attractive compared to traditional finance (tradfi) credit markets when the U.S. fed funds rate was near zero. However, as the risk-free rates rise in traditional markets, crypto-native yields do not see the same overall increase. This is because crypto yield isn't priced over treasuries or other typical tradfi reference rates.

Hergen also pointed out that as rates rose over the last year, there were significant declines in both volatility and volumes in crypto markets, which are key drivers of many sources of yield in crypto. He suggested that diversifying away from purely crypto-based yields is important for success through inevitable crypto cycles. He also noted that as the market becomes more saturated over time, arbitrage opportunities, which many crypto yields are based on, are likely to decrease, leading to structurally lower crypto yields in the long term2.

In conclusion, the discussion emphasizes the importance of a robust RWA investment strategy, the need for diversification, and the potential of Aave GHO for Real World Assets. The key takeaway is the need for a balance sheet perspective, effective balance sheet management, and collateral allocation strategies for the success of any significant stablecoin. The discussion also highlights the potential of RWAs as a tool to manage the asset-liability exposure of a stablecoin and provide uncorrelated revenue streams.

Posted 10 months ago

Last reply 8 months ago

Summary updated 2 months ago

Last updated 09/12 13:52