Currently, the issue with stablecoins is either high centralization or inefficient use of funds, with significant “stabilization fees.” ViNc245, the Chinese ambassador for Pendle, explains the substitute for stablecoins, fETH, and lists some of the risks he is concerned about.
I proposed the idea of “having a stable coin with a bit of stability” before. One of the options at the time was GLP (50% delta) /gOHM. However, the underlying asset is still a centralized stablecoin. The basic principle is a dual coin mechanism, where ETH is used to create fETH + xETH, representing low volatility (10% Ethereum fluctuation) fETH, plus xETH that absorbs the remaining volatility. xETH then becomes a fee-free, non-liquidating ETH leverage token. Finally, there are a series of market operation mechanisms to prevent the imbalance of the proportion between the two coins.
My observations are as follows: 1) The design is good, but it is uncertain what attracts users to mint. The reason why GLP is popular is mainly due to its continued excellent income from fee sharing. For fETH to be popular, it must have an attractive APR, which has become the (potential huge) operating cost of the project. Although Fraxfinance is willing to bribe fETH/frxETH, Blockingir still breaks the original intention of 10% volatility. 2) Holding fETH may also require payment: minting fees; when the fETH vs xETH ratio is imbalanced (too much fETH), fETH holders need to pay xETH holders (similar to funding fees).
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3) The mechanism of xETH is too uncertain. The actual leverage of xETH is not fixed. It changes with the reserve ratio of fETH:xETH. Although there is no liquidation risk and leverage fee, holding xETH cannot control the exposure it faces. 4) xETH has the opportunity to dilute equity after a decline. After Ethereum rises and falls back to its original position, xETH may not necessarily return to its original position. Generally, this type of product is only suitable for short-term holding, which conflicts with its positioning for HOLDers.