- Cardano’s (ADA) Charles Hoskinson is contemplating converting 140 million ADA to USDM to solve the liquidity problem on the network.
- Some market participants have argued that this could disrupt the market momentum and cause a significant price decline.
Cardano co-founder Charles Hoskinson has made an audacious proposal to resolve the low stablecoin liquidity concerns in the network’s Decentralised Finance (DeFi) ecosystem.
During his usual AMA session, Hoskinson admitted that the ratio of stablecoin market capitalisation to total DeFi Total Value Locked (TVL) is relatively lower than on other blockchains. Our research confirms that Ethereum has a ratio of 195% while Solana has 125%.
Comparatively, Cardano only has a ratio of 9.65%, with its treasury holding 1.7 billion ADA ($1.23 billion). Meanwhile, Hoskinson expects its TVL amount to surpass the combined value of Ethereum and Solana in the near term, as outlined in our recent news brief.
To offset this problem, Hoskinson suggested that a whopping amount of 140 million ADA ($100 million) should be converted to USDM (Cardano’s premier fiat-backed stablecoin). With an annual return of between 5% and 10%, this would improve liquidity and significantly fill the existing vacuum. Interestingly, this suggestion has created mixed reactions within the Cardano community.
Reactions Within the Cardano Community
While a section of the community members believe that this move could strengthen DeFi participation without any disruption, others, including a popular Decentralised Representative dubbed Whale, argue that this could lead to a serious market distraction. It is believed that this move could delay potential upsurges, including the predicted run to $15, as mentioned in our recent blog post.
According to Whale, pushing 140 million ADA would force traders to exit the market in anticipation of a downturn, subsequently reducing the market value. Instead, Whale suggests that a crypto-backed stablecoin like ObyUSD should be minted to successfully inject liquidity without direct sales of ADA.
No. I can’t support 140m ADA sell pressure in current market conditions, although I acknowledge it could strengthen Cardano’s DeFi ecosystem significantly. There might be a time where this makes sense, for instance, ADA is flying high and has turned, and we’re all already.
Responding to this, Hoskinson assured that there is a better way to do this without necessarily disrupting the market. According to him, using Over The Counter (OTC) or Time-Weighted Average Price (TWAPs) could easily solve this issue. Additionally, he believes that the stablecoin situation has been a major issue on the network. Injecting liquidity would generate some non-inflationary revenue for the treasury and strongly build the DeFi economy.
Joining the discussion, another market participant identified as PlayfulOtter drew Hoskinson’s attention to an existing market trend where a $3 to $5 billion in sell volume triggers a 15% to 20% market fall.
Meanwhile, ADA is already struggling as it records significant declines on its major trading sessions, falling by 7.5% in the last 24 hours, 0.67% in the last seven days, 22.5%, in the last 30 days, and 13% in the last 90 days. At press time, the asset was trading at $0.63 after falling from its daily high of $0.68. However, analysts believe that there could be a rebound.
As highlighted in our last analysis, ADA could surge to $10, but would depend on multiple factors, including the approval of the spot ADA Exchange Traded Funds (ETFs). The US Securities and Exchange Commission (SEC) was expected to make decisions by May 29, but it delayed. As noted in our previous discussion, the third decision deadline for the Grayscale Cardano Trust is currently fixed on October 19.
