Submitted on 26.09.2021
BABELFISH AGGREGATOR INCLUSION CONSIDERATIONS by XIRI
Table of contents
- I. Introduction
- II. Fundamentals
- III. Reserves Transparency
- IV. Volatility
- V. Velocity
- VI. Ownership
- VII. Resources
- VIII. Yield Opportunities
- IX. Conclusion
- X. Sources
Stablecoins are a core component of the BabelFish protocol. While adding more stablecoins increases the overall liquidity and utility of the protocol, it doesn’t come without risks. It is very important to conduct proper research of each stablecoin before adding it to the protocol to avoid costly mistakes and having to deal with a stablecoin losing its peg. This paper will focus on the value TrueUSD can bring to BabelFish.
Founded in March 2018, The TrueUSD team owns a friendly cooperative relationship with the TrustToken team. The TrustToken team supports TrueUSD in operations, compliance, and banking relations, collaborating to drive higher standards for customer experience, increased marketing budget, growing engineering resources, and more adequate liquidity support.
TrueUSD stats (As of September 16, 2021):
- Market cap rank: 6 ($1,400,696,756)
- Supporting Exchanges: 150
- Market share: 1.14%
- Creation date: March 2018.
- Collateral: Fiat
- Composition: USD cash and cash equivalents that include short term, highly liquid investments of sufficient credit quality that are readily convertible to known amounts of cash.
- Where it is held: In trust accounts at federally insured U.S. depository institutions and a Hong Kong depository institution.
TrueUSD is a fully regulated fiat-backed stablecoin. One of the advantages over other stablecoins is the TrustExplorer, a real-time assurance dashboard. This means anyone can audit TrueUSD collateral at any point in time to confirm it is pegged 1:1 to the US Dollar. Other Stablecoins like USDC provide only quarterly reports, which allows them to obscure some of their practices and not actually have 1:1 backing 100% of the time. You can also generate an independent accountant report  live as proof of these reserves, such a report was generated as part of this document . A Chainlink feed  is also provided to easily integrate the proof of reserves with other cryptocurrency projects. This will come useful while integrating it into BabelFish. In addition to the real-time assurance dashboard, they provide monthly updates on their Medium page  with circulating supply broken down by chain. This can give us an idea of where TUSD is used and which kind of users we can attract by including TUSD on the aggregator. For August 2021:
- TUSD market cap: $1,401,011,122
- On-chain circulating supply:
Ethereum: $992,779,511.28 TUSD
TRON: $270,750,340.97 TUSD
Binance Chain: $6,194,776.28 TUSD
Avalanche: $581,594.58 TUSD
Comparing this report with the one from July 2021 we can see TrueUSD is sustainably growing without losing its peg:
- TUSD market cap: $1,257,346,616
- On-chain circulating supply:
Ethereum: $980,698,511.5 TUSD
TRON: $270,752,731.8 TUSD
Binance Chain: $6,987,777.20 TUSD
Avalanche: $585,731.18 TUSD
Apart from the obvious takeaway that Ethereum has the largest market share, you can also see that BSC (Binance Smart Chain) TUSD use is growing as well. BabelFish already has a bridge for both ETH and BSC so adding TUSD has the possibility of reaching an untapped market.
Market forces will always make Stablecoins deviate a little bit from its peg. The key detail to look at is that this deviation is not too big and doesn’t last long. If TUSD loses its peg, but the reserves stay stable, this will provide an arbitrage opportunity that will quickly take the token back to its target price. Starting July 16, 2018, TUSD price has mostly oscillated between 0.9727 (-2.73%) and 1.04 (4%).
In all cases, you can see the price went back to its original $1 target price rather quickly. Furthermore, it’s important to note that the trading price is not the same as the redemption price. Regardless of the market price, you should always be able to redeem TUSD back into real dollars and transfer it over to a bank account of your choosing. TrustToken provides this service if you create an account with them . However, account creation requires KYC.
Velocity is defined as how often each unit of currency changes hands. It is also commonly referred to as the rate of turnover. To calculate it, you only need to divide the current trading volume by the market cap. When the velocity of money is high, it means each unit is moving “fast”. Velocity reflects high demand.
Currently, TUSD is ranked 6th while Tether is the clear leader with 100%+ velocity. After the first three stablecoins, there is a steep decline in velocity, with USDC, sUSD, GUSD and DAI on similar ranges to TUSD. There isn’t much historical data since Stablecoinwars will only provide this data for the past week, but at least it helps to paint a picture of how much TUSD changes hands in the markets. Tether is intentionally excluded from this chart since adding will skew the rest of the data. On average, Tether has close to 50% more velocity than BUSD and 90% more than both USDC and TUSD.
Unlike USDT and USDC, TUSD has heavy whale concentration (like BUSD). A handful of addresses own most of the total supply.
In this context, a whale is defined as an address that owns more than 1% of the circulating supply, while an investor is an address that owns between 0.1% and 1% of the circulating supply.
This heavy concentration presents both an opportunity and risk for BabelFish, since it can be expected that whales will move massive amounts of capital at once, putting pressure on the aggregator to rebalance the remaining assets to redeem the whales withdrawal request. On the flip side, this also enables BabelFish to capture big chunks of capital at once. As seen on the graph below, whales currently holding TUSD appear to be long-term holders and actively accumulating TUSD over time. If BabelFish provides these whales attractive interest rates (through Sovryn for example) and stability, they may choose to keep their assets stored in the aggregators for the long term, providing a tailwind for asset growth.
Figure 4  - Ownership by time held
TUSD has a direct presence in four different blockchains:
- Ethereum 
- Binance Smart Chain 
- TRON 
- Avalanche 
You can find the contracts for the asset linked at the end of this document.
TUSD has multiple platforms where it can be deposited to earn some yield. At the time of writing, there are three decentralized options and two centralized options:
All the decentralized options run on the Ethereum Mainnet and they provide variable interest rates based on supply and demand. AAVE also supports Polygon and soon Arbitrum. Unfortunately, TUSD is not available on any of these other networks. Compound is working on a multi blockchain solution called Gateway, which will act as a bridge to multiple blockchains, and eventually all the assets supported on Mainnet will be supported on Gateway too (this will take some time, however).
Historically, AAVE has had the most volatile APY returns, ranging from ~0%-24.59%. Compound, on the other hand, is much more stable ranging from 2.24%-7.57%. Curve reports APYs from 0.09% to 10.12%. All these stats are taken from what the protocols report on their own stats websites, linked in the sources section. Please note they all added TUSD recently, so the timeframes are not equal and there is not much history to look at.
It should be noted that deposits and withdrawals in the decentralized protocols incur high fees. For example, depositing TUSD on Compound will take a fee of about $50-100 at the time of writing. Withdrawing is way more expensive since “c tokens” need to be burned and redeemed for the underlying asset, which greatly increases the gas price by about 5x. When done at scale, however, the fees will represent a much lower percentage of the total capital being deposited.
Other options are available on lesser-known platforms, like Beefy Finance on BSC. However, these options imply you are a liquidity provider with a 50/50 split on a different crypto asset, which carries impermanent loss risk. Volume is also not meaningful (less than $100k total liquidity) for the scale of operations BabelFish will do.
Long-term, both Eth2 and the layer 2 solutions will significantly lower the gas price of these transactions, unlocking new yield strategies for increased profits.
With a three-year track record, a growing market cap, and solid, real-time transparency, TUSD would be a great addition to the BabelFish aggregator. It will allow the protocol to capture a new user base with deep pockets and a long-term mindset.
Major decentralized platforms added TUSD recently. Curve was the first in March 2021, followed by Compound in July and AAVE in August. Although the yield today is low (less than 3% on average), TUSD is just starting to get traction in the DeFi markets.
Eventually, adoption will drive higher yields and platforms like Compound can enact yield farming rewards in COMP that can further boost yields for BabelFish by either keeping the COMP or selling it and compounding the returns in TUSD.
AAVE has also experienced periods of high returns (20% APY) that can be taken advantage of programmatically by moving the capital from other platforms into it to take advantage of the temporary higher yield, then shifting back the capital when the yields normalize.
Onward, DeFi Hitchhikers!