We have talked about the rise of decentralized finance (DeFi) so many times on our site, and the space has seen a massive explosion over the recent weeks and months, reaching a total value locked of around $7.13 billion according to DeFi Pulse. The crypto assets pertaining to this space have also reached a cumulative value of around $13.35 billion. According to one analyst, it is scary how much DeFi actually runs on two stablecoins – Tether (USDT) and USD Coin (USDC).
As the latest Tether news show, the pseudonymous DeFi analyst “Devops199fan” recently noted that “it is scary how much of DeFi runs on Tether’s USDT” and the USD Coin stablecoin, which is backed by Coinbase and Circle.
“it’s scary how much of #DeFi runs on $USDT / $USDC. both coins have a blacklist functionality. If AMMs or projects like @iearnfinance are blacklisted for whatever reason this will cause significant collateral damage for the entire #DeFi ecosystem,” he said.
both coins have a blacklist functionality 🛑
— devops199fan 🔪📜😅 (@devops199fan) August 26, 2020
In context to this, there are hundreds of millions of dollars worth of these cryptocurrencies in the DeFi ecosystem, and all of that reached a point where the decentralized DAI stablecoin is actually partially backed by USDC.
The main concern about these tokens playing a key role in decentralized finance is now related to how they can blacklist addresses from making transactions. As we can see, on-chain analysts have found a number of instances of the stablecoin’s administrator addresses using the function.
According to Andrew Kang who is the founder of Mechanism Capital, centralized stablecoins are getting pushed to the forefront while more decentralized alternatives don’t gain as much traction:
“We should be pushing for more usage of trust minimized stablecoins in trading pairs ($DAI, $sUSD). Increased usage of centralized stablecoins accrues value to corporations who make $ from fiat deposits. More demand for $DAI and $sUSD accrue value for $MKR and $SNX.”
We should be pushing for more usage of trust minimized stablecoins in trading pairs ($DAI, $sUSD)
Increased usage of centralized stablecoins accrues value to corporations who make $ from fiat deposits
— Andrew Kang (@Rewkang) August 26, 2020
Still, coins like DAI or sUSD face regulatory risks. The Financial Action Task Force (FATF) is one of the regulators that released a report in which it mentioned concerns about stablecoins including DAI. As they said:
“To understand… whether the revised FATF Standards are sufficient to mitigate the ML/TF risks [of] the first largest existing stablecoins (Tether, USD Coin, Paxos, Truecoin, DAI) The report recommends that the FATF release guidance on so-called stablecoins, which would address the practical issues of the application of revised FATF Standards.”
Hey MakerDAO, the Financial Action Task Force (FATF) is looking right at you: https://t.co/EkFQGd0b2u
(You too Tether, USDC, Libra and other "so-called" stablecoins.) pic.twitter.com/BhR1lHJSpH
— John Paul Koning (@jp_koning) July 29, 2020
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