Over the course of the last year Sovryn released Zero, a product with killer app potential. This coming year we should focus on nurturing this potential, and introducing the Sovryn Dollar.
We can expect the coming year to be a year of consolidation. Bitcoin price is likely to move sideways and overall new entrants and market adoption will be modest. Our goal this year should not be rip-roaring growth - rather steady improvements and consistent growth, to set us up for, what may be, a very wild 2024.
Until now, we have focused on the web dapp as the primary user interface for interacting with Sovryn. However, fully decentralised power-user interfaces (that need to cater to all sorts of wallets and user configurations) are too clunky, and appeal only to a very limited set of power users.
The simplicity of centralised services allows them to be far more user-friendly and attract user numbers orders of magnitude greater than what dapps attract. This is true even for very simple dapps such as Uniswap, and is even more significant for relatively complex dapps like Sovryn. It is time for us to shift our focus from building an interface - to building an ecosystem of 3rd party apps and products that can integrate Sovryn.
Zero and the Sovryn Dollar are two sides of the same coin. As we grow demand for Zero, so we must also grow demand for the Sovryn Dollar. Of all the things we must focus on this coming year, this should be our highest priority and north star.
While Zero is the relatively easier sell, the Sovryn Dollar is in many ways the more important product. Sovryn Dollar represents a reliable, decentralised, uncensorable and counterparty-free form of Bitcoin that can be used as a currency (MoE, UoA) - going beyond Bitcoin’s current use as asymmetric SoV. Digital dollar demands digital-gold-backed dollars.
That said, the Sovryn Dollar, as a stable asset, does not have in-built fomonomics. Adoption of the Sovryn dollar, therefore, depends on the quality of services and products built around it. Even before a full economy is built, Sovryn Dollar demand and adoption can be kick-started by demand for a truly counterparty-free currency. That must start with us Sovryns. All Sovryns should hold at least part of their short/medium term savings in Sovryn dollar, once it launches - to protect our wealth, to vote with our wallets and to stay sovryn.
In the first half of 2023, we should look to switch to Sovryn Dollar as the canonical stablecoin in the Sovryn ecosystem. This will help protect the Sovryn ecosystem from the risks of these assets and also provide an early demand driver for Sovryn Dollars.
Currently, about 40% of dollars borrowed from Zero are bridged out via Babelfish. We have observed a constant pressure to maintain sufficient reserves of USDT/USDC/BUSD as a result. We have worked with Babelfish to help them to build self-balancing curves that should help alleviate this problem.
We can and should look to reduce this issue further, by encouraging people to bridge out via BTC instead. This will help drive more activity in the AMM and keep the dollars in the Sovryn ecosystem. We can encourage this by making the option obvious in the UI as well as by making it the default way to bridge out directly to fiat via the fiat bridges. Overall, having improved integration with the fiat system will make Sovryn Dollar and Zero more attractive. Even deeper and smoother integration with the fiat world can be achieved by allowing Sovryn Dollars to be spent via the legacy card rails.
Exporting Sovryn Dollar
As the amount of DLLR in circulation grows, it will become more attractive to external protocols to seek to draw some of that liquidity by listing DLLR. That means that Sovryn can look to begin exporting DLLR or XUSD to Ethereum, BSC, Polygon and other chains later next year. At some point, it will also become more attractive for CEXs to list either XUSD or DLLR as well.
We have an extremely important window of opportunity over the course of the coming year. Bitcoin lending and borrowing services managing billions of dollars demonstrated a clearly massive market, and then, suddenly disappeared. Celsius, Genesis, Blokfi, Voyager. These giants were hit by an asteroid level extinction event. The path has been cleared for Zero to fill this ecological niche.
Zero protocol can be expected to generate roughly $6m in revenue for each $1B borrowed. With many billions of borrow demand, so Zero alone can be a significant revenue driver. Currently, very significant scale is required given the thin margins Zero provides - I believe that scale is achievable. However, we not think of Zero origination fees as the primary revenue driver - rather it can be thought of as a revenue leader that builds the userbase and ecosystem. I believe Sovryn has a path to unlocking far greater protocol revenue.
Over the coming year, there are two revenue opportunities that we should look to drive off the back of Zero.
First, Trading - BTC/DLLR volumes, in particular, can grow significantly with more people on/off-ramping, trading and using Sovryn Dollar. The challenge of providing significant liquidity will remain, but Zero offers an avenue for organic growth.
Second, Stability Pool - stability pool liquidations offer a potentially huge revenue opportunity in volatile markets. Based on Liquity’s history, this can generate as much as 6% of the total loan value annually in recurring revenue. This would amount to $60m per billion in ZUSD outstanding.
It is estimated that to provide for smooth liquidation, 15% or more of the entire ZUSD float needs to be available for the stability pool. It makes no sense for 15% of a currency to be held in a stability pool. However, the Sovryn Mynt will own close to 100% of the ZUSD. I would be in favour of transitioning to the Mynt being the main or exclusive provider of ZUSD to the stability pool and reaping the liquidation yield - provided this can be done without introducing significant risk to the Sovryn Dollar peg.
We are also seeing growing interest from established projects, wallets and services. We can accelerate this adoption by demonstrating development and usage from within the Sovryn community.
Sovryns must lead from the front. We must eat our own dogfood. We must be the first to hold our savings in Sovryn Dollar and the first to build 3’rd party products on Sovryn. We are seeing very encouraging signs of projects, emerging from the community, that are looking to build on Sovryn Zero and the Dollar.
Early next year, with the launch of the Sovryn Dollar, here are several things we can do to eat our own dogfood.
- Sovryn core will look to transition to making all payments in Sovryn Dollar
- Svryns can begin to hold short and medium-term dollar-denominated savings in Sovryn Dollar
- Entrepreneurial Sovryns can work with the core team to launch independent services that leverage Zero and Sovryn. Several such projects seem to be underway. Reach out to me if joining them, or considering starting one. There is a huge market opportunity that has opened up to us.
- Switch to Sovryn Dollar as the primary stablecoin in the Sovryn ecosystem.
Sovryn as a project, a community and a mission has taken a long term view. Our view has been that a Bitcoin world will be built on self-sovryn, decentralized protocols and services. Central to these are basic financial tools like stable currency, lending & borrowing and free market trade. The events of the last year have been painful in the short term. In the long term, they are proving our thesis and have opened up a massive opportunity. We have positioned ourselves to capitalize on this opportunity. With Zero and the Sovryn Dollar, Sovryn is at the right place and the right time - on this we must execute together in 2023.
Stay Sovryn. Grown Sovryn.