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The Crypto Explorer: The evolution of Stablecoins in the crypto ecosystem

Welcome to the written edition of The Crypto Explorer, a podcast by Sygnum Bank which takes you into the exciting world of crypto and Future Finance. Discover the key takeaways from our conversations with leading figures in crypto and finance.

This week, The Crypto Explorer hosts Nadia Alvarez, Head of Growth at MakerDAO, and Néstor Palao, Head of DLT and Corporate Clients at Sygnum Bank. They chat with host, Aliya Das Gupta, on the rise of stablecoins and their role in the digital asset economy.

What is MakerDAO’s role in crypto?

Maker DAO is a decentralised loan protocol on Ethereum. Each time MakerDAO approves a loan, it mints a stablecoin - Dai - pegged to the US dollar.

Why are stablecoins so essential for the adoption of digital assets?

Currently, there are “a lot of use cases” for stablecoins, especially with the rise of decentralised finance (DeFi). However, their core purpose is to be a stable currency within crypto, unlike volatile assets like Bitcoin.

Is it contradictory to have a decentralised stablecoin linked to a centralised asset like the US dollar?

Not necessarily. According to Alvarez, Dai is pegged to the US dollar because it is a “reference currency in the financial world”. This almost feels like a step along the journey, while the market continues to experiment with pegging stablecoins to a range of “Web 3 assets,” which could become a reality in the near future.

According to Palao, stablecoins “have been able to bring USD 50 billion in assets from a traditional financial system into a more disintermediated market”. There are discussions around other assets which stablecoins could be pegged to, whether Web 3 or alternative traditional assets, and this will continue to evolve.

Could multiple assets (e.g., gold, real estate) back stablecoins?

“Dai started as a single collateral coin, backed by Ethereum, but the idea was always to become a multi collateralised stablecoin,” to reduce the correlation of the assets backing Dai.

Alvarez envisions “a mix/bridge between Web 3 world and traditional real-world assets backing the Dai… that’s what a multi-collateral stablecoin is about.”

How is the launch of centralised stablecoins and CBDCs affecting decentralised counterparties?

Alvarez thinks “CBDCs will bring crypto to the mainstream.” However, how a country implements a CBDC “will impact the potential level of interaction with the DeFi ecosystem.” CBDCs could also catalyse people to search for solutions that best meet their needs, including decentralised alternatives.

According to Palao, a dream scenario would be the integration of both realities. For example, “a digital Swiss franc issued by the Swiss National Bank on Ethereum or any other public blockchain“.

Is the goal to have a CBDC running on a private blockchain, managed by a government, but which can interact with the broader DeFi ecosystem?

“I think that’s exactly the case, at least what we dream for“ according to Sygnum’s head of DLT and Corporate Clients.

We are moving towards an interoperable multi-chain digital asset ecosystem, and the Head of Growth at MakerDAO thinks “CBDCs will be one of these chains in the ecosystem”. In the future there could be a mix of permissioned and permissionless networks with bridges connecting all of them.

What kind of use cases do you see emerging with Dai?

According to Nadia Alvarez, the use cases of stablecoins are mostly in lending pools, to help users add leverage, but there are also some interesting differences depending on the context of a region. For example in Latin America stablecoins are considered currency, with people preferring to earn their salary in stablecoins, and preferring to get involved in crypto rather than having a traditional bank account.

With the growing adoption worldwide, what’s next to turn crypto into a USD 5 trillion industry?

According to Nadia Alvarez, “traditional companies offering DeFi services to their users will help the crypto ecosystem to grow even more,“ potentially to those levels.

Listen to the full podcast with many more insights here.

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Because Sygnum is a bank and some of the information in the podcast relates to financial and investment topics, we want you to understand that we do not create a bank client relationship with you when you listen to the podcast. By listening to the podcast, you agree that the information on this podcast does not constitute professional advice and no bank-client or other relationship is created between you and Sygnum. Do not consider the podcast to be a substitute for obtaining advice from a qualified investment advisor. The information in the podcast may be changed without notice and is not guaranteed to be complete, correct or up-to-date. All information you hear is never considered to be a solicitation for any purpose, in any form or content.

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