A few weeks ago, we published a whitepaper on a new type of stability module for decentralized stablecoin protocols called the Transmuter.

As the system is currently being audited, now is a good opportunity to revisit the reasons why we started working on this mechanism and share our next steps and plans for Angle more broadly.

We have been in the space for almost two years now, and I must say that I have never been more excited about our perspectives at Angle and the stablecoin industry as a whole.

The month of March was a tough one for Angle. The Euler hack, where Angle had $17.6m, brought the protocol close to its end. While we learned a ton from the situation, one of my main learnings over this period was the USDC depeg that preceded the Euler hack.

This stress test demonstrated that no stablecoin was sufficiently prepared for the depegging of one of its stablecoins or the failure of one of its underlying banks. Looking further, it revealed that we were simply not yet ready to revolutionize the world's financial system.

To eventually reach that point, we first need to begin by constructing a scalable infrastructure that can efficiently withstand any form of black swan event.

Over the last few months, we have relentlessly tested, simulated and iterated on the design of the Transmuter system. So much that we're now super confident on the quality of the innovation we're bringing into the market. Yet, and after more than two years actively building DeFi systems, we're also very much aware that this alone will not be sufficient to reach the scale we're aiming for.

A stablecoin is like a standard. However safe, robust, and resilient the standard you are pushing for may be, no one will have an incentive to use it unless other people use it. The Transmuter may be the most advanced form of price stability module you can think of, but to drive a stablecoin revolution, we also need to increase demand.

Actual demand for DeFi products was often biased by the presence of incentives for people to play with these products. Angle protocol plays and has always played this token incentive game because this is what enabled agEUR to be integrated as it is today.

The billion dollar question is how to move beyond the classical chicken and egg challenge faced by all stablecoins in a self sustainable way.

In fact, this question can be taken from a broader perspective than just stablecoins: it also applies to everyone building in DeFi and pushing technological infrastructure for financial applications on blockchains.

I am sure that not everyone will agree on this, but there's in fact nothing much new in DeFi with respect to what is happening in TradFi. And so far, we have been more or less reinventing the wheel by launching similar products but on a different infrastructure, leading to the same end operations or trades that were already possible in TradFi.

This is particularly true for stablecoins. Before stablecoins, it was already possible to send money across the globe, earn a yield on your savings, orborrow to take leverage on another asset.

To truly emerge at scale, DeFi systems must do more than just replicate what can be done in TradFi, as TradFi systems already work quite well.

When we can efficiently replicate TradFi systems in DeFi (because quite often DeFi systems are less efficient replicas than what you get in TradFi), we must leverage the transparency, composability, and faster and trustless operations enabled by the DeFi technological stack (like Uniswap did for buying tokens).

When it comes to stablecoins, it is commonly accepted that they can make a difference in these two main use cases:

• worldwide transfers and remittances

• earning a yield

In this paper, Uniswap and Circle argue that stablecoins can reduce costs for remittances. While I do agree on the easiness of blockchain transfers and hence of sending stablecoins to whoever wherever in the world with limited fees, I disagree with some of their conclusions.Let's say I'm sending USDC to my friend in Ivory Coast, the fee will be very small and my transfer will be fast, it's cool. But what happens when my friend wants to withdraw their USDC in fiat to pay for real-life services? Circle, if they don't have a bank account in Ivory Coast, will still have to process the transfer from their US Bank account to Ivory Coast, meaning my friend will be facing the same costs as with traditional financial solutions.

The stablecoins that will prevail on this application are those that are used for a specific intra crypto use cases (like USDT for arbitrage between centralized exchanges), those that have a worldwide network of banks (an improved Western Union or Money Gram) or those integrated by merchants around the globe (like Visa and Mastercard did) so there's not even a need to off-ramp. All in all, we have already seen such massive networks or integrations develop, but good luck on achieving this as a newcomer with limited capital!

In any case, decentralized stablecoins are less suitable for use as mainstream means of payment or for remittances. There will, at least in the short term, always be more friction to on and off ramp from stablecoins. This does not mean that it'll be impossible (e.g., with Mt Pelerin, agEUR can be off-ramped to fiat), but it will be harder than other forms of e-money.

The yield use case is where I believe Angle can make the most difference in the short term and where we should focus most of our future efforts.

Stablecoin protocols are powerhouses that offer more than just a stable asset as an output. They are similar in many ways to traditional financial systems such as ETFs and credit institutions, but with the added benefit of relying on a decentralized and trustless infrastructure.

For example, many stablecoin protocols can offer loans with robust liquidation mechanisms (those that have a collateralized debt position mechanism), automatically invest a portion of their reserves in diversified products (like Maker investing in US Treasury bills), or enable leverage with the stablecoin as a quote asset.

If people borrow a stablecoin, then protocols earn interest, and if these protocols put their liquidity to work and invest a portion of their reserves in an automated way, they can also earn scalable revenues from the liquidity they control. Combine just these two sources, and you're getting to the point where you can, in a scalable manner, offer a form of savings account to all stablecoin holders, like Maker is doing with its Dai Savings Rate (DSR).

Of course, any TradFi institution can offer a yield to its stakeholders, andprotocols like Maker with their DSR are just limiting the opportunity cost with respect to their TradFi counterparts. But if we look into TradFi yield products, what's the illiquidity, what are the risk management practices or the auditability of the reserves?

Stablecoin protocols are fully auditable, transparent systems that can offer instant liquidity.

Everyone can see and at any time the state of the reserves backing a stablecoin, just like any well built protocol can technically enable redeeming the stablecoin for a portion of the reserves at any time (even during bank holidays or weekends).

So coming back to the question: what is the answer to the billion dollar question of growing stablecoin demand?

It's not about any 0 to 1 but about the need to leverage the core of the technological infrastructure on which stablecoins rely, just like Uniswap did for the exchange of tokens. We have the means to build systems that, because of their liquidity, transparency, openness, resilience and trustlessness, provide incentives for people to use them at scale.

Imagine you are a user of traditional financial institutions, and you want to earn on your assets. What if you could get access to the same level of services with fewer frictions to enter and exit, with more guarantees on what is done with your assets, and with no risk of a bad surprise in which you lose your assets forever because the institution suddenly closes? Which one would you trust more?

Playing on what makes us different and more efficient than TradFi is where I believe we should go all in at Angle. In fact, we have started laying down the foundations for this vision for decentralized stablecoins a while ago.

• The protocol now accepts different types of tokenized TradFi yield instruments as a collateral for people to borrow agEUR, and smart players are already leveraging their exposure to Euro securities by borrowing agEUR.

• Our Transmuter, developed around industry-leading security standards and designed to deal with liquidity risk and to enable agEUR to be backed by both stablecoins and tokenized Euro yield instruments, is coming very soon.

• Our agEUR savings contract is just waiting for the Transmuter to be in place to be finally launched. Upon this, there should be a very limited opportunity cost for using Angle with respect to another offchain safe yield solution.

• Protocol was decentralized from scratch, and we'll very shortly push to move its governance to a completely onchain mechanism.

• We're starting to invest a lot of resources in improved risk managementpractices at the protocol level and we're going to fully revamp our analytics to be a proper monitoring and assessment tool on the protocol, for both newbies and experts.

• And of course, while I am less confident on the ability of decentralized stablecoins to emerge as global payment solutions, we're not giving up on this and have developed the Merkl solution to position agEUR as a liquidity facilitator in DeFi. By the way, agEUR is still making 70% of the volume of all Euro stablecoin trades.

The endgame plan for a stablecoin is not sexy. Growing stablecoin demand will be about constant iterations around transparency, auditability, risk management practices, DAO processes and smart contract security. I don't believe in a growth hack or anything of the sort that will help us all scale to billions easily, but rather in persistent efforts to:

1. Reduce the opportunity cost with respect to other TradFi products

2. Build trust

We have a technological edge as an industry, let's leverage it and facilitate the transition to DeFi! Let's build together the future of money and finance.

It's going to be a treacherous path but you can count on our dedication to achieve this.