1. Expansion of Stable Coin Exchanges

Michael emphasized the potential for expanding stable coin exchanges, especially in regards to cross-jurisdictional arbitrage. He noted that while the existing stable coin swaps (such as between USDC and USDT) have been popular, there is a much wider array of use cases that can be explored for stable coins. By recognizing the different regional adoption and use cases among stable coins, opportunities arise for more sophisticated value transfers between international markets that utilize these digital assets.

2. Importance of Technical Solutions

Michael pointed out that the current limitations in foreign exchange swaps for stable coins could largely be attributed to technical issues rather than market demand. He explained that traditional mechanisms for swapping stable coins rely on concentrated liquidity, which may not adapt well to changing market dynamics. There is a clear need for more adaptive technical solutions to facilitate efficient trading and liquidity management across stable coins.

3. Limitations of Current Crypto Pools

According to Michael, existing crypto pools face significant challenges regarding price impact in swaps, especially when it comes to foreign currencies like Euros and US dollars. He noted that the price impacts can range between 10-30% for existing crypto pools based on naive algorithms. This inefficiency underscores the necessity for tailored solutions to enhance performance in stable coin exchanges that cater to different currencies.

4. Yield Generation and Subsidization

Michael introduced the concept of using yield generated from stable coins to subsidize liquidity rebalancing in crypto pools. He described how newly developed stablecoins could help create a revenue stream that would bolster the sustainability of these liquidity pools. This approach not only addresses technical inefficiencies but also offers a systematic financial model to enhance overall market making in decentralized finance (DeFi).

5. Potential for New Stable Coin Models

The discussion also touched on the idea of developing new stable coins, such as a Serbian Euro (serY Euro) that operates under a collateralized debt position (CDP). Michael suggested that implementing such models can better utilize the earnings from borrow rates to fund liquidity dynamics within pooled stable coins. This innovative approach can expand the use cases of stable coins, encouraging their adoption across different financial systems.

6. Simulations Indicating Improved Efficiency

Michael shared results from simulations that showed significant efficiency improvements related to price impact when implementing the proposed yield-subsidized model. He noted that while traditional models resulted in high price impacts, newly simulated scenarios demonstrated potential impacts dropping to as low as 2%. These findings highlight the efficacy of his proposed strategies in enhancing liquidity management.