Editor's Note: This article discusses key issues in stablecoin development, such as revenue sources, risk isolation, and distribution strategies. The author points out that strategies relying solely on limited market capacity and centralized exchanges have a ceiling, thus requiring more diverse revenue channels (such as LSTs, LRTs, etc.) and decentralized risk management mechanisms. By introducing methods similar to Tranching to layer risks, stablecoins can become more robust. Meanwhile, the article emphasizes the importance of network effects and distribution channels, believing that future stablecoin competition will focus on compliance and global expansion capabilities.
Following is the original content (slightly edited for readability):
We have become accustomed to "trading-type" leaders in the stablecoin market. Indeed, USDT and USDC excel in payments and entry/exit. However, we have merely scratched the surface of a potentially larger use case. This underestimated narrative is the "investment-type" stablecoin, driven by broader crypto-native returns. They have replaced traditional treasuries, becoming the perfect channel for stable crypto yields.
By adopting a flexible hybrid approach to obtain these yields, Resolv aims to establish a true yield dynamics center. Our goal is to provide infrastructure for comprehensive investment solutions that grow with the industry. This is our professional domain and our passion.
The yield-generating stablecoin market will become massive, as cryptocurrencies can be an excellent alpha source with a global asset base. However, two main obstacles still hinder this potential's growth: scalability and risk. Scalability is limited because on-chain markets are relatively small—yields compress quickly.
Cryptocurrency risk remains a "nightmare" in traditional finance: for many, even a 5-fold return is insufficient to "touch cryptocurrencies". We need to build a yield generation solution that can scale with the market while keeping crypto-related risks under control.
Yield Expansion
So, how do we improve the scalability of yield sources supporting stablecoin returns?
Although somewhat oversimplified, the answer is:
·Choose the most scalable sources
·Increase the number of yield sources
Delta-neutral strategies are an excellent yield source, primarily relying on perpetual futures, where the market is enormous. Its trading volume is 5 to 10 times that of the spot market. Uncleared contracts are also considerable: approximately $6 billion for Bitcoin, $10 billion for Ethereum (though recently decreased by nearly 3 times), and $5 billion for Solana.
However, a bottleneck still exists. Looking at these three assets, the actual market capacity (before experiencing significant impact) is about $20 billion. This is good, but insufficient if we want to build a larger, forward-looking scale.
More importantly, counterparty exposure limits from centralized exchanges (where futures exchanges operate) and decentralized exchange liquidity restrict opportunities for any single strategy operator. Not to mention, if a single entity holds most positions, this would create enormous systemic risks.
In plain terms, this means we need diversification. Not just within a single delta-neutral strategy, but across underlying assets and exchanges.
These sources can vary: from LSTs (staking tokens) and LRTs (liquidity provision tokens) to lending markets. These sources can be created by external providers and projects, operated by third parties, and regulated by dedicated risk managers. We can also address liquidity fragmentation issues—because these sources support a single stablecoin, thereby driving the liquidity flywheel.
To make it work, we need a modular approach and a chain-centric architecture. You might ask: "Are you just bundling various crypto yields together and seeing what happens?"
The answer is not so simple.
We will certainly see more projects building in the yield-generating stablecoin domain. And there will be different yield sources—from delta-neutral to MEV, AI agents, and high-frequency trading strategies. Although not delving into specific solution scalability issues, they will share a common point—risk exposure (though specific risks will differ for each source).
This brings us to the next topic—risk isolation.
Risk Isolation
Each yield source has a specific set of risks. For example, in delta-neutral strategies, the primary risks are funding rate fluctuations (holding perpetual futures can lead to losses, thereby affecting stablecoin pegging) and counterparty risks (whether from CEX or DEX).
Other sources will have their unique risks. When combining multiple different sources to support a stablecoin, you face higher de-pegging risks. Once de-pegged, the stablecoin's "end" arrives—we have witnessed this scenario multiple times. Stablecoins cannot tolerate losses.
If you mix these different sources, you cannot create a stable product.
The solution is to isolate risks into a separate tool that will absorb potential losses.
This tool will be more volatile than the stablecoin but provide higher returns. In traditional finance, this concept is known as "tranching".
Resolv adopts this approach to contain yield source risks.
In this case, the stablecoin (USR) is the senior tranche, while a separate token (RLP) serves as the junior tranche. In practice, RLP acts as a scalable decentralized external insurance fund.
Stablecoin projects typically have some form of insurance fund, but they are internal: these funds sit in the project's treasury, are limited in scale (requiring separate fundraising and interest payments), have low transparency, and are relatively rigid.
An externalized insurance fund like RLP grows alongside USR, self-balances, is transparent, and is market-driven.
RLP receives a portion of the protocol's total TVL (total TVL of USR and RLP), and since RLP's TVL is only a small part, RLP receives returns beyond expectations. This effect can be seen as built-in leverage that cannot be replicated without USR's asset base.
Moreover, RLP is liquid and integrated into lending markets and yield stripping protocols. Imagine having this tool for your delta-neutral strategy.
[For financial enthusiasts like us, more background: In the future, we might have separate RLP tokens for different risk exposure types. There could be a "Binance RLP" to handle credit risk (comparable to credit default swaps in traditional finance), or a "HyperLiquid RLP" handling smart contract risks. Entirely new markets and tradable risk instruments can be created from this.]
In short, we can strip specific strategy risks and sell these risks to the market in the form of high-yield RLP tokens.
By offering "above-average crypto-driven returns without crypto-related risks", we can expand distribution to more conservative user groups.
Distribution
Distribution is crucial. The future of crypto competition will be won here. To be frank, I believe stablecoins will have an advantage here, both in the cryptocurrency field and in traditional finance. In the crypto realm, stablecoins serve as a perfect liquidity flywheel, driving the TVL of blockchains and projects. They already have a mature product-market fit.
Compared to structured products in traditional finance, stablecoins are almost superior in every aspect: liquidity, transferability, capital efficiency (you can use them as collateral and create leverage), and self-custody.
Let's try to imagine potential users as a continuous spectrum.
On the left are crypto-native users, farmers, and power users, while on the right are elderly people who hide cash under their pillows (and some conservative family offices and hedge funds). As we move along this spectrum, we encounter more "sticky" users.
Starting from the liquidity flywheel and crypto-native mechanisms, the goal is to continuously move to the right by penetrating more traditional channels (such as new-type banks). This is our main objective for the next few years, as global permissions are gradually advanced and established.
In the crypto field, network effects provide excess returns, so the ability to convert other market participants into your distribution agents is a huge advantage.
By allowing third parties to participate in yield generation (as strategy initiators or risk managers), Resolv is expanding the network effect. Look at how Morpho introduces new product opportunities and liquidity through risk managers, thereby promoting growth. Similarly, Pendle's liquidity flywheel drives project integration, further increasing network effects.
We see many projects trying to build a "vertical moat" by controlling various stages of value generation, keeping economic benefits in their own hands, but consequently becoming unable to collaborate and expand with other projects.
In contrast, we will establish a "horizontal moat" where distribution and income generation will benefit all participants. We aim to remain as neutral as possible in this process to optimize the best product output.
Stablecoins inherently have distribution advantages, which are further amplified by network effects.
A Note on Relevance
For any crypto project, there's an "elephant in the room" - that is, the moat, the ability to stay in sync with the market, and maintain relevance. We believe this is a huge problem because many projects gradually disappear into obscurity after a few years of narrative. To stay ahead of competitors in the super dynamic crypto market, you must be able to integrate new yield sources and leverage emerging narratives. This is precisely what we can achieve through a modular approach.
Don't forget that token incentives are also an important source of crypto yields. Liquidity moves from one project to another, seeking early liquidity incentive drops and massive APYs. By distributing liquidity to broader yield sources (projects), we can also capture this portion.
Roadmap
Looking ahead, it's always exciting to see how big things develop, but there's still a lot of specific work to do. Let's look at the plans for the next few months.
Our plans are consistent with the key elements mentioned earlier - these elements include yield sources, risks, and distribution.
First, we are integrating with Superstate, a process currently underway. This is our first collaboration with a third-party yield source, through which we can benefit from more stable and diversified fund rates.
To broaden our asset base, we will add BTC as a base asset to our portfolio. Our focus on on-chain methods allows us to use different BTC LSTs / LRTs in stablecoin support, so we anticipate more partnerships and higher returns driven by related solutions.
In terms of distribution, our goal is to deploy our products where demand is strongest, so expanding to new chains and emerging ecosystems is a crucial part of our growth. Currently, our TVL on Base has exceeded $150 million, and we are HyperBullish, but more progress is yet to come.
Additionally, don't forget other distribution channels like wallets and CEXs (more news about this will come soon). Another major liquidity source comes from crypto projects' treasury reserves (managed by asset management companies like Karpatkey) and funds supporting other stablecoins.
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