On Tuesday, our stablecoin Space at @RunesCC had too much valuable content to fit into one article! Today, I organized the insights shared by the great teacher @DaPangDunCrypto regarding the stablecoin sector, where he is particularly concerned about the integration of stablecoins with BTC expansion ⬇️ To understand stablecoins, we first need to look at their minting background, which I categorize into two types: 1️⃣ The first type is over-collateralized stablecoins. This is the native model of the Crypto world, using volatile crypto assets like BTC and ETH as collateral, and combating risks through over-collateralization: MakerDAO is the pioneer of this model. In the Bitcoin ecosystem, the core challenge for this type of stablecoin is where to place the minted stablecoins. 🔸 If placed on the Bitcoin mainnet, the TPS and Gas will result in extremely poor liquidity, with very limited use cases. 🔸 If placed on a layer two network, there are issues regarding how to securely handle user collateral: for example, @yalaorg's technical solution for retail investors is similar to custodial services, while the approach for large holders differs. The success or failure of such products entirely depends on whether they can build a thriving application ecosystem on layer two networks. 💡 If the minted stablecoins have no use, they lose their value. 2️⃣ The second type is traditional fiat-backed stablecoins: their collateral consists of real-world assets (RWA) like US dollars or US Treasury bonds, pegged 1:1 to the dollar, such as USDC and USDT. The rise of these stablecoins is essentially driven by a dual force of compliance trends and enormous profit potential. The profit margins in the currency issuance business are extremely high, with Tether's revenue in 2023 being $6 billion, and projected earnings for 2024 at $13 billion: 🔸 Besides various fees during circulation 🔸 The issuer holds underlying assets like Treasury bonds, and the interest generated typically belongs to them, making stablecoins a highly profitable business. These two models represent different development paths. The former aligns more with the decentralized spirit of Crypto, managing risks through code and on-chain mechanisms. The latter is led by compliance and commercial resources, with players having strong backgrounds and application scenarios, such as giants like Meta, who have inherent advantages. /// 🔥 Off-chain solutions for Bitcoin payments Satoshi Nakamoto's white paper envisioned Bitcoin as a payment network, but today BTC has become a store of value asset, and its mainnet performance cannot meet the demands for high-frequency, small-value payments. Therefore, I believe that solutions for BTC payments should be realized through off-chain protocols, where the Lightning Network has solved some issues but is not very effective, primarily because no one wants to spend an appreciating asset, and due to its own technical complexity. Thus, @spark is building its own off-chain payment network, which operates independently of the mainnet, bypassing the performance bottlenecks of the mainnet, resulting in extremely fast speeds. Of course, any off-chain protocol needs time to test its security and stability, so early adopters will likely be closely related stablecoins, probably those issued by the ecological project @brale_xyz, and only after the network matures will major players like USDC and USDT be able to enter. The value of these off-chain solutions lies in their genuine attempts to solve the long-standing payment issues of Bitcoin. /// 🎯 The core of project success or failure: commercial resources and application scenarios For stablecoin projects, while the technical architecture is important, commercial resources and application scenarios are the key determinants of their success. Tether's strategy of deploying across multiple chains is a bet on all possible futures to solidify its market monopoly. 🔸 One is @stable: L1, compatible with EVM, using USDT as the native Gas. 🔸 Another is @PlasmaFDN: a sidechain of the BTC network, also EVM-compatible, which can use USDT or BTC as Gas, but transfers within it are actually gas-free. The advantages of Stable and Plasma lie in Tether's support, which means strong commercial resources. Spark is similar; its founding team has a strong commercial background. Strong commercial resources mean they can more quickly bring Web2 payment scenarios into Web3, which will generate enormous value. 💡 If a stablecoin is issued but no one uses it, then it is a failure. /// ⚡️ Market landscape and potential risks Many people believe that the compliant USDC will eventually replace the less compliant USDT, but I hold a different view. I believe that behind both may lie the "light and dark" cards of synergistic capital. 🔸 USDC follows a compliant route, serving the visible market; 🔸 USDT can meet the needs of the gray market. 💡 The ultimate goal is to capture the entire market. At the same time, Tether's recent aggressive positioning in the Bitcoin ecosystem, including large purchases of BTC and investments in expansion plans, is also a strategy to accumulate political capital and ally with BTC forces. 💥 Here, I have a prediction: there will definitely be stablecoins that will face crises in the future. In the current wave of compliance, there may be pseudo-compliant or problematic projects that are difficult to detect before risks explode. Such chaos is unavoidable in the industry's development. /// 💰 Participation strategies for ordinary players For ordinary retail investors, direct participation in the stablecoin sector is limited. I suggest considering the following angles: 🔸 Stable financial management: For those projects with strong backgrounds and high interest rates, moderate participation can be considered as a form of financial management. 🔸 New project investments: Projects like Plasma, participating in their public offerings, are likely to yield profits. However, for retail investors, the quotas are limited, and the final returns may only be equivalent to financial management. Overall, the space for ordinary players to operate directly is quite limited. 💡 The real Alpha opportunities may lie in finding project tokens related to stablecoin applications or focusing on stocks of publicly traded companies transitioning to Crypto.