Decentralized Stable Assets, CBDCs, and the Future Challenges of Stable Assets

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By Cristian
Estimated reading: 8mins
decentralized stable assets

In just a decade, blockchains amassed hundreds of thousands of users.

Their corresponding cryptocurrencies promised a decentralized, parallel financial system. 

But there were two outstanding issues:

  1. Price Volatility - cryptocurrencies, in their nascent forms, are susceptible to high volatility. What merchants want to accept a currency which can depreciate 50% in a day?
  2. Injection of Centralized Counterparty - the largest stablecoins, fiat-backed versions, are dependent on a central issuer to ensure backing and redeemability.
stable assets

Caption: The top 5 stablecoins by market capitalization are fiat-backed (central issuer). Note: Dai is backed primarily by USDC.

So, what’s the solution?

Decentralized Stable Assets. 

Cryptocurrencies which are always fully-backed by and redeemable for the native token on a decentralized blockchain. 

Which are issued by a piece of immutable code with no governance and no admin keys to change the rules. 

Decentralized Stable Assets: Innovating Stability

Decentralized stable assets, such as USDL, stand out by ensuring an over-collateralization of the underlying asset - in this case PLS. A liquidation mechanism ensures that the stable asset is always redeemable for a dollar’s worth of collateral.

These stable assets leverage smart contracts on blockchain platforms to govern their operations, eliminating the need for a centralized entity to hold reserves. 

A prime example of decentralized stable asset is USDL, built on PulseChain

USDL achieves stability through a system of over-collateralization of the underlying asset (PLS). 

The protocol enables users to lock up their PLS, in ‘Vaults’, as collateral to generate or ‘mint’ the stable asset, USDL. 

The decentralized nature of these stable assets offers advantages such as transparency, censorship resistance, and global accessibility.

The Liquid Loans protocol and its USDL stable asset exemplifies the innovative nature of decentralized stable assets, pushing the boundaries of innovation and decentralization to provide stability and accessibility to users. 

Another decentralized stable asset, LUSD, received mass adoption almost overnight in 2021. 

LUSD Market Cap

Users collateralized their ETH and minted LUSD in an attempt to remove their reliance on fiat-backed stablecoins.

LUSD is the best living example of a decentralized stable assets. 

During the banking crisis of 2022/2023, never once was LUSD:

  1. Undercollateralized
  2. Under the threat of coins being blacklisted/censored

Compare this to USDC, which was fractionally reserved when its banking partner who held part of its reserves went bankrupt. And USDCs central issuer, Circle, has censored individual wallets for interacting with Tornado Cash, a piece of code that they did not like. 

As the landscape of decentralized stable assets continues to evolve, projects like Liquid Loans play a pivotal role in shaping the future of decentralized stablecoins or more aptly named - stable assets.

CBDCs: Centralized Control in the Digital Age

While decentralized stable assets like USDL gain traction, central banks worldwide are exploring the concept of CBDCs

CBDCs are digital forms of a country's fiat currency, issued and regulated by the central bank. 

Unlike decentralized stable assets, CBDCs are centrally controlled, allowing governments to maintain control over monetary policy while leveraging the efficiency and security benefits of blockchain technology.

CBDCs possess the potential to revolutionize traditional financial systems, offering benefits such as increased financial inclusion, reduced transaction costs, and improved transparency. Additionally, CBDCs can aid governments in effectively addressing issues such as money laundering and tax evasion. 

However, the introduction of CBDCs raises concerns regarding privacy, surveillance, and the potential erosion of the roles played by financial intermediaries.

While central bank digital currencies (CBDCs) present various potential benefits, it is crucial to consider their potential negative aspects. Let's explore some of the concerns associated with CBDCs:

Privacy and Surveillance: A primary concern surrounding CBDCs is the potential for increased surveillance and loss of privacy. CBDCs would enable central banks to track and monitor transactions in real-time, potentially infringing upon individuals' financial privacy. The extensive collection of transactional data could raise concerns about government overreach, mass surveillance, and potential misuse of personal information.

Centralization of Power: CBDCs, by their nature, are centralized digital currencies controlled by central banks. This concentration of power raises concerns about the potential for abuse or manipulation of the monetary system. Governments could potentially exercise greater control over individuals' financial transactions, imposing restrictions or surveillance that infringe upon individual liberties.

Disintermediation and Financial Inclusion: While CBDCs aim to enhance financial inclusion, there is a risk of disintermediation, where traditional financial intermediaries may face challenges. Commercial banks and other financial institutions could lose their traditional roles in the payment system, potentially affecting their profitability and ability to provide services to customers. Striking the right balance between financial inclusion and maintaining a healthy banking system is crucial.

Cybersecurity and Operational Risks: The digitization of currency introduces additional risks, such as cybersecurity threats and potential operational failures. CBDCs could become attractive targets for hackers, potentially leading to financial losses and disruptions in the economy. Ensuring robust cybersecurity measures and resilience against operational risks will be critical to safeguarding the integrity of CBDCs.

Technological Barriers and Accessibility: Not everyone may have equal access to the digital infrastructure necessary for CBDC usage, potentially exacerbating existing inequalities. Remote areas with limited internet connectivity or individuals who are not technologically savvy may face barriers to accessing and using CBDCs. Ensuring equitable access and user-friendly interfaces will be essential for widespread adoption and avoiding exclusion of certain segments of society.

Economic Impact: The introduction of CBDCs could have far-reaching implications for the financial system and the broader economy. The potential impact on monetary policy, interest rates, and financial stability requires careful consideration and evaluation. The design and implementation of CBDCs should be conducted with thorough economic analysis to mitigate unintended consequences.

While CBDCs do offer potential advantages, concerns and opposition surrounding their adoption have been raised by various individuals and politicians. 

For instance, Michael Saylor, a BTC proponent, has expressed skepticism about CBDCs gaining widespread adoption. 

Additionally, politicians like Senator Ted Cruz have taken steps to introduce bills preventing the Federal Reserve from developing a retail CBDC. 

These opposing views and actions suggest a challenging path for CBDCs to achieve widespread acceptance.

However, despite the resistance, there may be a middle ground that allows for the rollout and use of a centrally controlled digital currency while coexisting with stable assets like USDL.

Challenges for the Future of Decentralized Stable Assets

While decentralized stable assets like USDL hold significant promise, several challenges must be addressed to ensure their successful integration into the financial ecosystem.

Regulatory Frameworks: The regulatory landscape surrounding stablecoins remains uncertain and fragmented. Governments and regulatory bodies worldwide are grappling with defining appropriate regulations as stablecoins operate across borders and challenge existing monetary systems. Striking a balance between innovation and consumer protection will be crucial in shaping the future of stablecoins and stable assets like USDL.

Volatility Risk: Despite their intention to provide stability, decentralized stable assets are not immune to volatility risks. Factors such as extreme market conditions or the collapse of underlying collateral can impact their stability mechanisms. Implementing robust risk management protocols and mechanisms is essential to effectively mitigate these risks.

Trust and Transparency: Trust is a critical factor for the widespread adoption of stable assets. Decentralized stable assets like USDL need to ensure transparency and auditability of their algorithms and collateral reserves to gain users' trust.

Financial Stability and Systemic Risk: As stable assets gain popularity and usage, the potential systemic risk they pose to the financial ecosystem should not be ignored. The interconnectedness of stable assets with traditional financial markets could amplify the impact of any disruptions. Robust risk assessment frameworks and contingency plans are needed to address these concerns.

Scalability and Efficiency: With the expansion of the user base for stable assets, scalability and efficiency become paramount. Ensuring that decentralized stable assets can handle a high volume of transactions without congestion or delays will be crucial for their widespread adoption.

User Adoption and Education: To achieve mass adoption, stable assets must overcome the hurdle of user education and familiarization. Many people are still unfamiliar with cryptocurrencies and may be skeptical of their stability and security. Efforts to educate the public about the benefits and risks associated with stable assets are necessary to build confidence and trust.


Decentralized stable assets have the potential to revolutionize the financial landscape by combining the advantages of cryptocurrencies with price stability. 

These assets leverage blockchain technology and smart contracts to create stability mechanisms governed by algorithms, eliminating the need for traditional intermediaries. 

This decentralization offers increased transparency, security, and efficiency in transactions.

Furthermore, decentralized stable assets can foster financial inclusivity by providing access to stable digital currencies for individuals in regions with limited banking infrastructure. 

The global nature of decentralized systems allows for borderless transactions and reduces reliance on traditional banking systems. Moreover, the decentralized nature of these assets ensures that stability is not subject to the financial health or actions of a single centralized authority. 

While challenges remain, the potential of decentralized stable assets to create a more accessible and resilient financial ecosystem is a promising prospect for the future.

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Disclaimer:Please note that nothing on this website constitutes financial advice. Whilst every effort has been made to ensure that the information provided on this website is accurate, individuals must not rely on this information to make a financial or investment decision. Before making any decision, we strongly recommend you consult a qualified professional who should take into account your specific investment objectives, financial situation and individual needs.

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Cristian is the CEO and Co-Founder of Liquid Loans. A former partner in an international accounting firm, Cristian brings this wealth of experience to build and provide thought leadership in the blockchain and DeFi space.

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