Cosmos

Stablecoins in the Cosmos ecosystem

The Cosmos ecosystem has solved one of the remaining constraints for growth; a healthy and liquid stablecoin market.
Range Team
Range Team
November 27, 2023

The stablecoin market in the Cosmos ecosystem has been a rollercoaster ride with major ripple effects. The rise and fall of the algorithmic stablecoin terraUSD, built on a Cosmos-based application-specific blockchain, was one of the most significant events of the last market cycle. It kick-started a domino effect that led to the collapse of some of the most high-profile crypto companies.  

TerraUSD (UST) rose in 2022 to the top of the stablecoin market, surpassing DAI, the most popular crypto-backed stablecoin in the Ethereum ecosystem. The price of Luna, UST’s companion token, more than doubled in two years to $116 by early May 2022. To learn more about how stablecoins work, check our primer on stablecoins.

Terra became the most valued Cosmos chain and one of the most vibrant ecosystems in Web 3. However, the unproven mechanism design collapsed in May 2022. UST lost its peg and most of its value. The Terra blockchain was halted and then restarted by two blockchains: Terra and Terra Classic. The UST fiasco left Cosmos users scarred, with their trust in algorithmic stablecoins shaken.

However, the lack of liquid stablecoin options has hindered the growth of financial activity in the Cosmos ecosystem. Stablecoins are vital to a thriving blockchain ecosystem. The winds are finally changing as the tech rails to bring more stablecoin trading volume on Cosmos are being set up. 

The introduction of fiat and crypto-backed stablecoins into Cosmos can help the ecosystem grow sustainably in two ways. First, it increases the available liquidity on Cosmos. Second, it can decrease volatility as the ecosystem comes to rely more on stablecoin DeFi products.

Fiat-backed stablecoins

  • In July, the most liquid stablecoin in the world, Tether’s USDT, launched on Cosmos via Kava. 
  • A native stablecoin has arrived in the Cosmos ecosystem. Circle has issued USDC in partnership with Noble, an appchain purpose-built for native asset issuance on Cosmos. With this partnership, one of the most trusted fiat-backed stablecoins is now integrated into the Cosmos ecosystem. Already, USDC has surpassed $15 million of total value locked (TVL) on Cosmos at the time of writing. USDC’s native bridging protocol, CCTP, will be integrated into Noble later this month. Through this bridge, more than $300 million of USDC currently used as collateral in the decentralized Ethereum exchange dYdX will be bridged to the new dYdX Cosmos chain.
  • Finally, increased liquidity of the wrapped version of USDC has arrived on Cosmos via interoperability layer Axelar and bridge Wormhole. These cross-chain solutions bring wrapped versions of Ethereum-minted stablecoins, such as axlUSDC, on Cosmos.

Crypto-backed stablecoins

  • The Inter Protocol token IST, a fully collateralized, cryptocurrency-backed decentralized stable token designed to maintain parity with the U.S. dollar, launched on the Cosmos-based Agoric blockchain in June. Similar to MakerDAO’s DAI, it uses three concurrent mechanisms to maintain parity with USD. It can be minted using ATOM collateral, reinforcing ATOM’s function as the premier reserve currency on Cosmos. 
  • Cosmos upstart Kujira launched a native decentralized stablecoin on Cosmos in August called USK. It is soft-pegged to the U.S. dollar and can be backed by various assets, such as ATOM, wBTC, wETH, wBNB, and Luna. USK is over-collateralized, such that it is supported by at least 166% of the circulating value to improve stability and reduce liquidation risk. 
  • Smaller crypto-backed stablecoins launched this year on Cosmos include privacy-preserving overcollateralized SILK and CMST

In the last few months, the Cosmos ecosystem has solved one of the remaining constraints for growth; a healthy and liquid stablecoin market. Spearheaded by the coming of native USDC via Noble and CTTP, the Cosmos DeFi ecosystem is poised for future growth.

These new stablecoins open up opportunities for developers building on Cosmos. They also come with their own challenges as they add complexity to the ecosystem. That’s where Range comes in. Stay tuned for a new Range feature that will make using stablecoins in Cosmos 10X easier and safer.