Market maker DWF Labs hints at synthetic stablecoin

Cryptocurrency market maker DWF Labs is planning to launch a stablecoin product that could compete with Ethena’s USDE.

According to DWF Labs co-founder Andrei Grachev, the cryptocurrency trading and market-making startup has completed the design of its synthetic stablecoin.

Synthetic stablecoins operate with a soft peg to fiat currencies like the US dollar and are backed by collateral assets like Bitcoin (BTC) and other designated cryptocurrencies.

To maintain parity, synthetic stablecoins rely on opening and closing short leveraged positions for the underlying collateral. While nominally decentralized, this design can introduce extra volatility due to its reliance on constant transactions tied to other tokens.

Grachev shared that DWF Labs’ synthetic dollar will support a collateral basket that includes three major stablecoins: Tether (USDT), Circle’s USD Coin (USDC), and Maker’s USDS (DAI), which was recently rebranded as Sky.

DWF Labs’ Grachev’s X post also listed other underlying assets including Ethena (USDE), BTC, Ethereum (ETH), a limited number of long-tail altcoins, and blue chips.

DWF Labs did not confirm whether the blue-chip category refers to non-fungible tokens, but the label hints that the highly coveted NFTs could be involved.

Entering the synthetic dollar market could position DWF Labs against Ethena, the issuer of crypto’s largest on-chain collateralized stablecoin, USDE. Launched for public trading in February, Ethena’s offering has garnered $2.69 billion in committed monthly confirmations for its product.

According to DefiLlama, most of the total locked value is on Ethereum’s blockchain, worth around $2.58 billion, with the rest distributed across networks such as Mantle, Arbitrum, and Blast.

DWF Labs could face the same skepticism in the crypto community that synthetic dollar protocols face. Following Ethena’s launch, decentralized finance leaders like Fantom developer Andre Cronje compared the sector to TerraUSD, the algorithmic stablecoin that was embroiled in a $60 billion ecosystem collapse in 2022.