Level Introduces a New Stablecoin Backed by Restaked USDT and USDC
Despite its interesting concept, the project is entering a crowded stablecoin market and will likely face challenges competing with industry giants such as USDT and USDC.
Level has recently announced the introduction of a new stablecoin backed by restaked USDT and USDC. The company has successfully raised $3.6 million from notable cryptocurrency investors such as Polychain and Robot Ventures and plans to roll out its stablecoin in a closed beta phase in the upcoming weeks.
This initiative is driven by the recent advancements in restaking protocols, which have expanded their capabilities to include assets beyond Ethereum. For instance, Eigenlayer recently introduced permissionless token support, allowing any ERC-20 token, including stablecoins and BTC-denominated tokens, to be restaked. Other staking protocols like Symbiotic and Karak are implementing similar features.
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Restaking means using the tokens staked to secure one blockchain to help secure others. It allows stakers to amplify their yields by simultaneously contributing to the security of other protocols. This model not only boosts the earning potential for stakers, it also offers a cost-effective security solution for emerging projects, eliminating the need to establish independent validator sets.
Level aims to pioneer the use of restaked stablecoins to back its stablecoin protocol. These tokens are generated when USDC or USDT are staked through staking protocols to earn yield. The yield arises from the tokens’ role in securing other blockchains. Level automatically handles this restaking process for users when they create its stablecoin using other stablecoins.
While the specific yield from these operations remains uncertain, Level is enticing early adopters by offering XP points for depositing stablecoins. These points can later be exchanged for the project’s governance tokens.
Offering points to boost Total Value Locked has been effective for other protocols, though it is uncertain if this alone can ensure long-term success in the crowded stablecoin market.
Currently, the competition among new stablecoins predominantly centers around yields. Early players like Ethena focused on yield derived from short positions in centralized exchanges and staking rewards from Ethereum. Others, like Paypal USD, subsidize their yield on platforms like Solana. Several other new stablecoins employ a similar “yield strategy.”
Although offering yield rewards has been a popular strategy to attract users, so far, it hasn’t significantly disrupted the dominance of major stablecoins like USDT and USDC. These giants benefit from extensive network effects and integrations, making it challenging for smaller projects to compete, regardless of potentially higher yields.
For example, Tether’s USDT boasts an astonishing daily trading volume of $49 billion and is integrated into nearly every crypto dApp available. Technically, projects like Level or Etherna might be more advantageous to use. However, their current trading volume is less than 0.2% of what USDT has.
On top of this, the yield can have a negative effect on the usage of the stablecoin. Holders would prefer to make transactions with "bad" stablecoins, keeping yield-bearing tokens in the wallet. Bad money drives out good.
Building a successful stablecoin requires numerous integrations, which is quite difficult and sometimes almost impossible unless the project already has wide recognition—a challenge for new projects.
Nevertheless, high yields on stablecoins help attract an initial user base, and this trend is likely to continue. It wouldn’t be surprising to see large stablecoins offer yields as well if they face real competition from other projects. This move would effectively eliminate the unique selling points of many new stablecoins available on the market today.
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