The Case for a Qubic Stablecoin - Part 3: The Best Option

We present a strategic plan for launching a Qubic-based stablecoin, detailing our vision, rationale, market positioning, and business model to attract innovators, foster cross-chain collaboration, and position Qubic among the top 10 cryptocurrencies globally.

Spelunker, Aug 14, 2024.

The Vision: A Qubic Stablecoin

We aim to create Valis USD (VUSD), the first safe, transparent, consistent, instant, scalable, and free stablecoin in the world.

• Safe: Each VUSD will be backed by one USD, with a 100% collateralization ratio.
• Transparent: VUSD will guarantee transparency via real-time, on-chain verification of reserves data.
• Consistent: VUSD will be a single-chain stablecoin, operating exclusively on Qubic to ensure consistent user experience (UX) in speed, scalability, and cost.
• Instant: VUSD transactions will be processed by Qubic, the fastest Layer 1 DRT in the world, with instant finality.
• Scalable: VUSD will leverage Valis Network, our middleware capable of supporting millions of concurrent Qubic users.
• Free: The implicit cost created by volatility and low liquidity (slippage) can easily outweigh the benefit of explicit zero transaction fees. VUSD transactions will have no explicit or implicit costs. Qubic does not charge for value transfers. The peg to fiat reduces volatility. Liquidity pools (e.g. VLIQUID) reduce slippage. Any residual costs, under yet to be defined normal conditions, will be covered by VUSD revenue.

The combination of these factors constitute VUSD’s unique selling proposition (USP), which can not be matched by any other stablecoin or chain in the market.

The Rationale: Ecosystem Benefits

The core challenge for any blockchain project is creating a thriving ecosystem that encourages seamless and friction-less participation. VUSD addresses several of Qubic's current challenges providing significant benefits within the Qubic ecosystem:

Economic Stability

VUSD will be pegged to USD and serve as a reliable medium of exchange and store of value within the Qubic ecosystem. This stability allows users and entrepreneurs to engage with confidence in daily transactions, long-term contracts, and user or entrepreneur incentives without concerns about QU volatility. With a stable peg, entrepreneurs can plan long-term strategies with confidence, and users can park assets in VUSD during periods of high volatility, reducing exposure to risk and fostering a more predictable and secure environment. As a result, the ecosystem sees an increase in trading volume as users feel more confident engaging with the platform.

Enhanced Liquidity

Stability naturally attracts liquidity. A stablecoin draws in users and liquidity providers, creating a network effect that makes VUSD more valuable as participation increases. Deep and stable liquidity within the Qubic ecosystem removes the friction of switching platforms, avoids cross-chain transaction challenges, and facilitates larger transactions with minimal price impact, making the ecosystem more attractive to institutional investors, further deepening liquidity. This, in turn, stabilizes QU’s value and drives further adoption of the Qubic network.

Talent Attraction

The unique benefits of VUSD—being safe, transparent, consistent, instant, scalable, and free—create an environment ripe for innovation and value creation. Such environment attracts entrepreneurs from other chains to build bridges for cross-chain asset transfers and interoperability layers for cross-chain communication with Qubic. This cross-chain connectivity ensures that Qubic becomes a vital hub for the next generation of decentralized applications and services.

DeFi Expansion

A stablecoin enables the easier development of complex financial products, such as cross-border lending, borrowing, and fractional ownership models, which are critical for real-world adoption. By offering a stable, high-performance platform with a wide diversification of financial tools, Qubic can attract a diverse range of users and institutional investors, further enhancing the ecosystem’s growth and expanding Qubic's influence across different blockchain ecosystems. Moreover, a stablecoin provides a gateway for traditional finance to interface with the Qubic network, a crucial step to drive mass adoption.

QU Appreciation

As VUSD’s smart contracts are deployed and utilized, QU tokens used in these contracts will be burned, reducing QU supply, creating deflationary pressure, and potentially increasing its value. Unlike Project X’s enforced supply reduction, VUSD’s strategy focuses on natural, value-driven QU burning that aligns with ecosystem expansion.

The Business Model: Yield Capture

The concept behind issuing stablecoins is straightforward: When you provide a dollar, the stablecoin issuer (in this case, Valis) creates a token redeemable for one dollar at any time. To uphold this commitment, Valis stores the dollar in highly liquid assets, like short-term U.S. Treasury bonds, which retain their value and yield interest. Valis retains these earnings since the redemption pledge remains at one dollar.

The Market: $150 Billion

With interest rates still elevated, stablecoin issuance has become a highly profitable business, fueling increased competition. The combined market capitalization of the top four stablecoins exceeds $150 billion, with projections indicating a potential market size of over $500 billion by 2030.

As of the first half of 2024, Tether leads the market, reporting a record-breaking net profit of $5.2 billion, driven largely by its investments in U.S. Treasuries. PayPal launched its PYUSD stablecoin, while Coinbase and Circle, the entities behind USDC, have expanded its multi-chain presence to 15 as they vie for a larger market share.

The Competition: Legacy & Multi-chain

The stablecoin market is dominated by well-established players built on legacy blockchains:

1. Tether (USDT, EURT, XAUT): As the first and most widely used stablecoin, Tether has played a crucial role in providing liquidity across numerous exchanges and DeFi platforms. However, its lack of transparency regarding reserves has led to significant regulatory scrutiny. Despite these challenges, Tether's multi-chain presence—spanning Ethereum, Tron, and Binance Smart Chain—has enabled it to maintain a dominant position in the market.
2. USD Coin (USDC): Managed by the Centre consortium, USDC has positioned itself as a fully compliant and transparent alternative to Tether. Its reserves are regularly audited, earning the trust of institutional investors. USDC's widespread integration with various DeFi platforms, coupled with its issuance on multiple blockchains such as Ethereum, Algorand, and Solana, underscores the importance of cross-chain functionality.
3. Dai (DAI): Unlike fiat-backed stablecoins, Dai is a decentralized stablecoin backed by cryptocurrency collateral on the MakerDAO platform. Dai's value is maintained through smart contracts and governed by MKR token holders, making it a popular choice within the DeFi ecosystem, where trustless interactions are paramount. However, Dai's model also highlights the challenges of maintaining stability without direct fiat backing.
4. Binance USD (BUSD): Once a significant player in the stablecoin market, BUSD is no longer being minted, reflecting the shifting regulatory landscape and the challenges that even well-established stablecoins can face.

Other stablecoins include: BiLira (TRYB), Dola (DOLA), Ethena USDe (USDE), Fei Protocol (FEI), First Digital USD (FDUSD), Frax (FRAX), Gemini Dollar (GUSD), Pax Dollar (USDP), PayPal USD (PYUSD), Rai Reflex Index (RAI), STASIS EURO (EURS), TerraClassicUSD (USTC), TrueUSD (TUSD), and USDD (USDD).

The Advantage: New-generation & Single-chain

VUSD’s competitive advantage lies in leveraging Qubic for superior speed and the Valis Network for unmatched scalability, positioning VUSD as a next-generation stablecoin in this crowded market.

Most stablecoins adopt a multi-chain approach to maximize reach, leading to variable user experiences in terms of transaction speed, scalability, and costs, depending on the underlying network. In contrast, VUSD’s single-chain approach on Qubic ensures a consistent and predictable user experience, offering instant speed, zero cost, and uniform scalability (millions of concurrent users). This positions VUSD as a reliable choice for use cases that prioritize performance over reach.

While stablecoins USDT and USDC emphasize non-network-dependent factors like liquidity, reach, and compliance, VUSD’s focus on network-dependent factors—such as speed and cost—makes it particularly well-suited for markets that demand a consistent user experience, like High-Frequency Trading, Decentralized Finance, and micro-transactions.

No other stablecoin will be able to offer VUSD’s unique combination of safety, transparency, consistency, instant speed, scalability, and zero cost—powered by Qubic and Valis technology.

The Positioning: A Superior GTM Strategy

In Part 2 we discussed the Steering Committee’s (SteCo) critical misstep in positioning Qubic as "uPoW for AI" at a time when the computational power needed to attract entrepreneurs was non-existent. Recognizing this, CfB moved swiftly to correct course. Given Qubic’s inherent strengths and market maturity, a go-to-market (GTM) strategy centered on "Ultra-high performance" would be far more effective than the current “uPoW for AI” or the future "uPoW for Anything" approaches.

To evaluate the effectiveness of these strategies, we will compare them across three critical factors: flywheel, network effects, and economies of scale.

Superior Flywheel

The flywheel effect is crucial for creating a self-reinforcing cycle that sustains growth.

In the "uPoW for AI" strategy, the flywheel is significant due to its focused application: AI development is enhanced by computational power, which attracts more developers and miners, creating a continuous loop of growth in AI capabilities.

Expanding to "uPoW for Anything" dilutes this effect, leading to a fragmented approach where activities may not reinforce each other effectively.

In contrast, the "Ultra-High Performance" strategy offers a more powerful flywheel by driving VUSD adoption, where increased liquidity drives more transactions, which in turn draws more users, fueling a continuous cycle of growth and stability in the ecosystem.

This makes Ultra-High Performance the most potent strategy for fostering robust, continuous momentum and growth.

Superior Network Effects

Network effects occur when the value of a product or service increases as more people use it, making this dynamic vital for scaling a platform.

In the "uPoW for AI" strategy, network effects are concentrated within the AI domain. As more AI developers and users join, the network’s utility within this specific area increases, enhancing Qubic’s appeal for AI-driven applications. However, this effect remains mostly contained within the AI ecosystem, limiting its broader impact, and it is dependent on the complexity and accessibility of integrating AI with uPoW.

The "uPoW for Anything" approach attempts to broaden these effects across various sectors. However, its wider focus can lead to fragmentation, with different sectors not reinforcing each other as effectively, resulting in a less cohesive ecosystem.

In contrast, the "Ultra-High Performance" strategy generates expansive, cross-ecosystem network effects. As VUSD adoption grows, the stablecoin’s appeal extends beyond the AI niche, attracting a more diverse user base—from retail users to institutional investors. This broad appeal strengthens the network, driving further adoption and integration across multiple sectors, which amplifies the network’s overall strength and appeal for new entrants. Leading stablecoins like Tether (USDT) and USD Coin (USDC) have demonstrated strong network effects, with daily transaction volumes often surpassing $50 billion.

By capitalizing on the broad appeal of stablecoins in the cryptocurrency market, the Ultra-High Performance strategy not only amplifies network effects but also positions VUSD as a key driver of mass adoption, ensuring a more resilient and scalable ecosystem.

Superior Economies of Scale

Achieving economies of scale is critical for reducing costs and improving efficiency as the ecosystem grows.

In the "uPoW for AI" positioning, economies of scale are possible but highly dependent on the widespread adoption of AI applications within Qubic. As more AI tasks are processed, the lower the relative cost per task, leading to improved efficiency. However, the specialized focus of AI limits scalability and the potential for significant cost reductions.

The "uPoW for Anything" strategy struggles with economies of scale due to its broad and fragmented nature. Different applications may require different types of computational power, leading to inefficiencies and making it challenging to achieve meaningful scaling benefits.

In contrast, the "Ultra-High Performance" strategy offers clear and robust economies of scale. As the user base and transaction volume grow, operational costs per transaction decrease, improving overall efficiency. This strengthens Qubic's competitive position as it scales.

This scalability allows the ecosystem to expand while maintaining or even enhancing cost-effectiveness, making it the most scalable and sustainable strategy among the three.

Conclusion

The 'Ultra-High Performance' positioning emerges as the most effective GTM approach, offering a powerful flywheel, robust network effects, and clear economies of scale. Together, these elements create a scalable and sustainable ecosystem, positioning Qubic for growth and market dominance. While 'uPoW for AI' has niche potential and 'uPoW for Anything' offers broader appeal, neither achieves the same level of momentum, efficiency, and scale as the Ultra-High Performance approach.

Moreover, stablecoins have a far broader appeal among crypto users than AI, making VUSD a more compelling driver of mass adoption. This strategy leverages Qubic’s strengths and aligns with crypto market current needs and demands, offering the best potential for sustained growth and industry leadership. Stablecoins play a critical role in the broader crypto ecosystem. Succeeding here means gaining instant and widespread recognition.

Dual positioning would split attention and resources, potentially confusing the community and investors. While 'uPoW for Anything' has potential, it’s still a work in progress. Once developed, key infrastructure—like bidding systems, consumption methods, and payment mechanisms—will need to be built. 'Ultra-High Performance' provides a solid foundation today, allowing strategic expansion to other projects once they are truly ready for the spotlight. If we really want to start converting prospects (entrepreneurs) into customers (a thriving ecosystem), let’s stop marketing what will be tomorrow and start capitalizing on what we have today.

By embracing this approach, we provide a clear and compelling answer to the critical "Why build on Qubic?" question, offering immediate value with broad market appeal.

Coming up: How Fast is Qubic?

Can Qubic deliver on this promise? In Part 4, we explore how Qubic’s unparalleled speed makes it the ideal foundation for VUSD, setting the stage to redefine the stablecoin market.

Read “The Case for a Qubic Stablecoin” Series

1. 🇺🇸The Case for a Qubic Stablecoin - Part 1: The Why Question
2. 🇺🇸The Case for a Qubic Stablecoin - Part 2: Marketing Qubic
3. 🇺🇸The Case for a Qubic Stablecoin - Part 3: The Best Option
4. 🇺🇸The Case for a Qubic Stablecoin - Part 4: Fast, Faster, Qubic
5. 🇺🇸The Case for a Qubic Stablecoin - Part 5: Growing the Ecosystem

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On this Page

• The Case for a Qubic Stablecoin - Part 3: The Best Option
• The Vision: A Qubic Stablecoin
• The Rationale: Ecosystem Benefits
• Economic Stability
• Enhanced Liquidity
• Talent Attraction
• DeFi Expansion
• QU Appreciation
• The Business Model: Yield Capture
• The Market: $150 Billion
• The Competition: Legacy & Multi-chain
• The Advantage: New-generation & Single-chain
• The Positioning: A Superior GTM Strategy
• Superior Flywheel
• Superior Network Effects
• Superior Economies of Scale
• Conclusion
• Coming up: How Fast is Qubic?
• Read “The Case for a Qubic Stablecoin” Series