Hard to believe after such a big jobs report that the Fed is not going to hike rates three times this year, one more than previous. The big winner is the Fed. This clearly gives it more leeway to fight inflation. And inflation has certainly hit a high, but it is still very present and may not say its last word. Commodity prices have risen again since the beginning of the year and could have an impact on consumer prices within 6 months. The markets were chaotic last week with the Fed's comments on financial conditions being interpreted as a green light for buying crypto. Despite poor corporate earnings, equity speculation continued, leading to a momentum factor crash and selling of cyclical and value stocks like energy. The bond market retraced after strong jobs and ISM data, but equity speculation continued. The move in bond yields was unwound by Friday's data, leaving affected stock market segments vulnerable. After strong payroll data, the Fed is expected to raise rates in May. The ECB has already raised rates by 50bp with the possibility of another 50bp hike in March and 25bp in May. The Fed, and ECB continued to hike rates and signal more tightening, with Chair Powell indicating cuts are not on the table this year. Investors can now expect 25bp hikes in March and May. With this monstrous employment report, persistent inflation, the pivot is not for tomorrow. September? Investors are dreaming !
A newcomer in the euro stablecoin race
Membrane Finance has launched EUROe, a fully-regulated EU stablecoin and payment network. The stablecoin is a fully fiat-backed stablecoin that operates on the Ethereum blockchain. It can be minted by depositing an equal amount of Euros to a customer's asset account. EUROe can be used for near-instant and cheap international payments, remittances, investments, and other use cases enabled by decentralized finance (DeFi) applications. It can be redeemed back to Euros by generating a burn address and once burned, a payment is issued to the customer through the banking system. There already existed in France a stablecoin of the same type, the EURL on Tezos but very little listed by the platforms, and not approved for more institutional use on Fireblocks for example. EUROe is the only one also to receive the Electronic Money Institution license from FIN-FSA. Corporate clients can sign up for EUROe at euroe.com and developers and DeFi users can purchase EUROe on decentralized exchanges. What about EURT, EURS, and EUROC ? Volumes are still very low. Unlike dollar stablecoins, there is no undisputed market leader yet, so the place is up for grabs but Circle or Tether are already there, although the mechanism and value proposition are a bit different.
Defi can’t wait GHO
Aave, the largest decentralized lending protocol, has created the GHO stablecoin, a decentralized and multi-collateralized stablecoin pegged to the U.S. dollar, backed by user-selected cryptocurrencies and governed by the Aave community. Launch is soon. The project aims to increase stablecoin adoption by increasing liquidity and stability in the DeFi space and earn interest from GHO lending. GHO is minted when a user puts up collateral and the interest generated from the loan goes to the Aave DAO's treasury. GHO is distinct from other stablecoins due to its position-based minting and being overcollateralized with multiple crypto assets. GHO stablecoin is also unique because it distinct from others like DAI which uses vault-specific minting. This decentralization sets it apart from other stablecoins in circulation, which are usually backed by a single entity. The GHO proposal introduces Facilitators, entities that can generate and burn GHO tokens in a trustless manner. Aave Governance must approve each Facilitator and assign them a GHO generation limit called a "bucket." The first facilitator, the Aave Protocol, will be activated if the proposal is approved and Governance will determine its bucket capacity to start GHO liquidity and market. The GHO introduction would improve stablecoin borrowing competitiveness on Aave Protocol, offer more options for stablecoin users, and increase revenue for Aave DAO by directing all interest from GHO borrows to the DAO. We can see that these second generation algorithmic stablecoins could have taken the lesson of the UST and FEI. Unlike GHO, UST wasn’t backed by crypto assets such as BTC or ETH. Apart from makerDAO's stablecoin, the DAI, no algorithmic stablecoin has managed to make a name for itself among the centralized stablecoins. It's a big challenge for AAVE. He is not the only one to take it up since CRV is also preparing to release his own, the crvUSD in the coming weeks.
Sources : Aave, Cryptoast, Membrane Finance, Bloomberg