The Next-Gen Stablecoin

As with all major technological innovations, the first iteration of stablecoins, also known as Stablecoins 1.0, have proven to have several limitations that have impaired their usefulness and utility. These stablecoins weren't designed to scale with RWA, be easily integrated and used across DeFi protocols, and return value back to their holders. Common challenges with current stablecoin designs are:

• Centralized stablecoins such as USDC and USDT serve as a medium of exchange backed by treasuries, but their regulatory framework only allows them to distribute yield to exchanges.

• Legacy decentralized stablecoin protocols have significant tech and governance debt as they were built on mechanisms to interact with digital assets.

• New yield bearing stablecoins are all single asset backed, which means greater risk, capped supply, and lower yield opportunities.

• Inefficient DAO governance introduces political inefficiencies, which impact the ability to make decisions efficiently and effectively and nurture protocol growth.

• Previously collapsed "algorithmic" stablecoins hid de-peg risk and promoted "risk-free return."

That's where Reservoir's rUSD stablecoin comes in - a censorship-resistant and transferable stablecoin that was constructed to integrate with multi-collateral asset adapters and be used across DeFi native applications. Reservoir's design enables an overcollateralized, transparent onchain balance sheet verifiable by all users.

The Stablecoin Pentalemma

Since the rise of Tether’s USDT in 2015, market participants and stablecoin issuers have been attempting to solve the stablecoin trilemma. While the "perfect" stablecoin is decentralized, stable, and capital efficient, a trade-off exists between varying degrees of decentralization, stability, and capital efficiency. However, as the stablecoin industry has evolved over the years and innovation in various pockets of crypto has ramped up, it has become increasingly more obvious that the stablecoin trilemma won't solve the true issues at hand. At least not for the use cases of tomorrow.

As we see it, stablecoins must be scalable and have real-world utility to remain competitive and relevant. The challenge in creating a stablecoin that is decentralized, stable, capital efficient, scalable, and has utility - or what we call "The Stablecoin Pentalemma.”

Unlike Stablecoins 1.0, next gen stablecoins must be scaleable to meet market demands; currently, the demand for stablecoins is greater than the supply of high-quality native digital assets - stablecoins should be able to be used not only within the confines of the speculative crypto market, but also in the outside world. But while a stablecoin must be able to fill the needs of market participants as industries evolve and adoption grows, stablecoins will also need to incorporate native digital assets and onchain real world assets (RWA) to be scalable.

The stablecoins of tomorrow must have real utility. By utility, we mean that stablecoins can seamlessly move from one blockchain to another to be used in various decentralized applications. Such is the case not just because it has become increasingly more apparent with time that stablecoins are needed in decentralized finance, NFTs, gaming, and other cryptoasset sectors, but also because the future of crypto is unanimously multi-chain.

Although the current stablecoin market predominately consists of first gen stablecoins, a continuation of the current trend indicates that the most successful stablecoins in the years ahead will undoubtedly be next gen stablecoins that address the aforementioned pentalemma. That's why since day 1, Reservoir has been crafted and created to be sufficiently decentralized, stable, capital efficient, scalable, and possess the right utility.