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onStable was formerly named onSynthetics and its aim was to create an ETH algorithmic stablecoin.
With the evolution of onSynthetics to onStable, the focus changed into enabling stablecoins backed by ETH Liquid Staking tokens, but without requiring depositing excess collateral as Liquid Staking tokens are yield generating tokens, which is a key difference when compared to other projects like MakerDAO that require to deposit excess collateral to mint DAI.
Another benefit of onStable is that it aims to create utility to onETH (formerly onE), the ETH stablecoin, by using the excess collateral accumulated by Liquid Staking tokens' staking and farming rewards to incentivize onETH lending supply, which will reduce the need to require a high borrowing interest for users willing to borrow onETH as an alternative source of finance to ETH.
Why do we need stablecoins backed by Liquid Staking tokens?
As Etheruem is moving from Proof-of-Work to Proof-of-Stake, the percentage of staked ETH is 6.48% of ETH's total circulating supply.
What will happen when Ethereum's transition to Ethereum 2.0 is complete?
The percentage of staked tokens of other Proof-of-Stake blockchains such as Avalanche, Polkadot, or Fantom, for instance, is 62.22%, 63.45%, and 63.85% respectively as of 08.10.2021. As such, we could expect the amount of staked ETH to increase when the transition to Ethereum 2.0 is complete, which raises the question of the capital inefficiency of Proof-of-Stake as the token of native blockchains shrinks significantly due to staking, and staking does not enable users to provide liquidity to decentralized exchanges or lending platforms for instance. Another trend observed is that lending interest tends to converge towards the staking reward rate when the percentage of staked tokens increases.
OnX Finance believes that as the number of users in decentralized finance applications continues to grow, the freely available amount of native tokens from the most popular Blockchains will be under pressure given the increased demand of decentralized finance services from platforms built on top of these blockchains, leading to high lending rates, higher gas fees (in USD terms) and ultimately could result in a sub-optimal outcome for the decentralized finance ecosystem in general.
Liquid Staking is a way to make Proof-of-Stake more capital-efficient by enabling users to:
- 1.access instant liquidity without needing to unstake and wait for several days before getting liquidity (unstaking lock-up periods)
- 2.borrow against Liquid Staking tokens
- 3.enabling the creation of stablecoins fully backed by staked tokens
onStable by OnX Finance allows users to create stablecoins backed by liquid staking tokens, which can be used as an alternative source of financing for lending/borrowing, and/or liquidity for several token pairs in DEXs.