Avalon Labs Interview, and a BTC backed stablecoin
Crypto Roundup
“Hello, let's ask some questions today about Avalon Labs. Can you say something about Avalon Labs and the stablecoin USDA?”
Expert
Absolutely. Avalon Labs is the team behind the USDa stablecoin, which is a pretty interesting new player in the stablecoin space. Their main innovation is that USDa is backed by Bitcoin rather than by traditional fiat reserves. So instead of holding dollars in a bank account or T-bills, they hold BTC.
What that means is it kind of bridges the Bitcoin ecosystem and the stablecoin world, giving Bitcoin holders a way to leverage their BTC into a stable dollar-pegged asset without selling it. They also use LayerZero tech for cross-chain compatibility, so it's kind of blending DeFi and CeFi.
In short, Avalon Labs is positioning USDa as a Bitcoin-backed stablecoin that might appeal to BTC holders who want stability and some yield. Let me know what else you’d like to dive into!
Crypto Roundup
“Okay, what happens if the Bitcoin price changes relative to the dollar? How does that work for this stablecoin?”
Expert
Yeah, that’s a really important question and one of the core challenges for a BTC-backed stablecoin like USDa. Essentially, if the price of Bitcoin drops significantly, the value of the collateral that’s backing those USDa tokens also falls.
So the way it works is that they likely have an overcollateralization ratio. For example, if you mint a certain amount of USDa, you have to put up more BTC in value than the USDa you’re getting, maybe 150% or 200% of the value. That way, there's a buffer.
If BTC’s price falls too much and that buffer gets eaten up, they’ll have liquidation mechanisms, just like a collateralized loan. They might sell off BTC to cover the stablecoin value and keep the peg stable. So the stablecoin itself stays at one dollar, but if BTC tanks, some of the BTC collateral might get liquidated to maintain that peg.
In other words, it's a balancing act. If Bitcoin goes up, great, everything's more stable. If it goes down, the system has to manage those risks. And that’s really the key challenge and the mechanism they use to keep USDa stable.
Crypto Roundup
“But do the providers still say that this is pegged to the U.S. dollar?”
Expert
Yes, absolutely. The providers are definitely presenting USDa as a stablecoin that's pegged 1:1 to the US dollar. Even though it’s backed by Bitcoin, the whole idea is that one USDa should always equal one US dollar in value.
So from a user perspective, they’re saying you can trust it as a dollar-pegged asset. The peg is maintained by the mechanisms we talked about—collateral ratios, liquidations if needed, and so forth. But the official line is definitely that USDa is a dollar-pegged stablecoin.
Crypto Roundup
“Okay, what can you say about the various percentages? They advertise it's yield-bearing, with up to 15% yield, and also there's a borrowing rate is given as well. Can you say more about that?”
Expert
Absolutely. So that’s one of the intriguing parts they’re advertising. They’re offering what they say is up to around a 15% yield if you hold or stake the yield-bearing version of the stablecoin, which they call sUSDa.
Now, where does that yield come from? Typically, it’s going to come from either fees generated by the protocol, possibly from borrowers who are minting USDa at that 8% borrowing rate, or from other yield strategies the protocol runs behind the scenes.
The borrowing rate they’ve set is around 8%, which means if you want to mint USDa using your Bitcoin as collateral, you pay that interest. And then the protocol can use part of that interest, or other earnings, to offer those higher yields to sUSDa holders.
Of course, a 15% yield is pretty high, and that often raises questions about sustainability. Usually, those high yields are there to attract early adopters, and over time they might adjust. It’s kind of a balancing act between what they can earn from borrowers and how much they pay out to people who are holding the yield-bearing version.
In short, the percentages are basically their way of saying: “Hey, we’re giving you a good yield to use this stablecoin and its yield-bearing version,” but it all depends on the protocol’s economics working out. It’s definitely something to watch in terms of long-term sustainability.
Crypto Roundup
“And I see some other large numbers are mentioned. It says up to 50% APY. Can you say more about that?”
Expert
Yeah, absolutely. So when you see a mention of something as high as 50% APY, that’s definitely a pretty eye-catching number. Usually, when protocols advertise that kind of yield, it’s either a short-term promotional rate to attract liquidity or it’s tied to specific conditions—like maybe you have to lock up your tokens for a certain period, or it’s a reward for early adopters who are taking on more risk.
In this case, if they’re mentioning up to 50% APY, it’s likely a kind of introductory or special yield for certain liquidity pools or certain staking scenarios. It’s a way to bootstrap liquidity and get people interested, but it may not be a long-term, sustainable rate.
So basically, it’s like a high-yield teaser. They’re saying, “Hey, you can earn a really juicy return if you come in early and provide liquidity or stake your tokens.” But over time, those rates might normalize to something lower once they have more stability and more users.
It’s definitely a good thing to ask about and understand where that yield is coming from and what the conditions are.
Crypto Roundup
“Okay, and they also mention leading custodians such as COBO, CFU, and Coinbase Prime. Can you say more about that?”
Expert
Absolutely. So when they mention custodians like Cobo, Ceffu, and Coinbase Prime, what they’re basically saying is that they’re partnering with well-known, reputable custodians to handle the Bitcoin collateral safely.
In other words, these are companies that specialize in securely storing crypto assets, often for institutional clients. By using recognized custodians, Avalon Labs is trying to reassure users that the Bitcoin backing their stablecoin is held in a safe, professional environment rather than just sitting in some random wallet.
Cobo is known for institutional-grade custody solutions, Ceffu is the institutional custody arm of Binance (formerly known as Binance Custody), and Coinbase Prime is Coinbase’s service tailored for institutions needing secure storage and trading.
So basically, by involving these big custodians, they’re adding a layer of trust and security. It means the BTC collateral should be well-protected and regularly audited, and that’s supposed to give users more confidence that the stablecoin is truly backed as promised.
Crypto Roundup
“All right, and can you say more about Avalon Labs, where it comes from, what is its national basis, which countries?”
Expert
Sure! So Avalon Labs, the team behind USDa, is actually based in the British Virgin Islands. That’s a pretty common choice for a lot of crypto and DeFi projects, because the BVI offers a favorable regulatory and tax environment. It’s kind of a hub for fintech startups that want a bit of flexibility.
So while the team might be international, their official national basis is the BVI. If you need any more details on them, just let me know!