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Compared — DeFi Stablecoin Mechanics — CDP, Algorithmic, and RWA-Backed Designs Compared
Three stablecoin architectures have survived market cycles: overcollateralized CDPs (DAI model), centralized reserve (USDC), and RWA-backed. Algorithmic stablecoins without full collateral have failed consistently. Here is the mechanics of each. User deposits 1.5 ETH ($4,500) as collateral Minimum CR: 150% Maximum mint...
FRAX = partially collateralized (USDC) + partially algorithmic (FXS) Initial: 100% collateral ratio Target: Optimal ratio based on market conditions If FRAX trades above $1.00: → Decrease collateral ratio (more algorithmic) → More FXS burned per FRAX minted (creates buying pressure on FXS) If FRAX trades below $1.00: →...
Issuer holds: US Treasury Bills + Repo Agreements + Money Market Funds (held by regulated custodian — e.g., BNY Mellon) User can: Deposit $1M USDC → receive 1M RWA stablecoin tokens Hold and earn ~4.5-5% APY (Treasury bill yield passed through) Redeem 1M tokens → receive $1M USDC + accrued yield Examples: - Ondo Financ...
DeFi Stablecoin Mechanics — CDP, Algorithmic, and RWA-Backed Designs Compared
We do not build pure algorithmic stablecoins without significant collateral backing. The entire category has failed in production without exception.
Common integrations: The Graph, Alchemy/Infura, OpenZeppelin Defender, and popular wallet providers.
Clarify requirements, compliance needs, architecture risks, and launch goals.
Implement core contracts, integrations, product flows, tests, and deployment automation.
Run QA, prepare audit handoff, deploy infrastructure, and support production rollout.
No. Every major pure algorithmic stablecoin has depegged catastrophically: Terra UST ($40B to near-zero in 72 hours, May 2022), IRON Finance (IRON depegged, TITAN went to zero, June 2021), Basis Cash (BASIS depegged within weeks of launch, 2020). The reflexive death spiral — stablecoin sells below peg → algorithmic expansion fails → confidence falls further → accelerated sell-off — cannot be stopped without collateral reserves to provide a price floor.
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