Asia’s Gateway to the Next Evolution in DeFi: Scaling Stablecoin Infrastructure for Mainstream Adoption
Note
Kaia Foundation is launching a new initiative, “The Digital Dollar Gateway in Asia.”
We aim to onboard native stablecoins on Kaia and integrate Kaia-based stablecoins with LINE’s Web3 Wallet targeting within the first quarter. Through this initiative, LINE’s 196 million users will be able to use Kaia-based stablecoins for rewards, payments, settlements, and remittances directly within the LINE app. Additionally, new incentive programs and activation strategies will be introduced to maximize Total Value Locked (TVL) and transactions within the Kaia DeFi ecosystem.
We plan to gather feedback from the community and ecosystem members on this proposal.
A final decision will be made following discussions and input.
We look forward to hearing from community members and DeFi builders.
Current landscape of stablecoin ecosystem in Kaia
Through initiatives like the D2I program(link) and Kaia Portal(link), we have successfully bootstrapped over $130M in TVL (excluding staking but including liquid staking, source), with approximately $65M in active liquidity. This includes more than $50M in liquidity for swaps on spot DEXs and over $15M in money markets for lending and borrowing, alongside $1B+ in trading volume.
However, we still lag in stablecoin liquidity, with only around approximately $5.9M+ derived from bridged USDT and USDC via Wormhole and Stargate among the $130M. Therefore, increasing stablecoin liquidity remains a key area for growth.
- USDT(Wormhole)(link) ≈ $5.8M
- USDT(Stargate)(link) ≈ $300k
- USDC(Wormhole)(link) ≈ $700k
- USDC(Stargate)(link) ≈ $320k
There are multiple reasons why we’ve been having a hard time attracting stablecoin liquidity with one of the biggest reasons being Wormhole’s daily limit in bridging volume, which is currently $500k for Kaia. This means only a maximum of $500k worth of assets can exit the source chain(Kaia) on a 24 hour window. This limit is set by the Wormhole Governor(link), and is hardcoded in the governor config(link).
Bridging accompanies various types of volume, including yield farming activity aimed at farming yields on D2I DEXes and Kaia Portal, and arbitrage activity targeting price discrepancies between CEXes and DEXes. Historical data shows that bridging volume frequently exceeds $500k, leading to asset locks that prevent users from bridging out of Kaia.
source : Wormhole Dashboard
While this limit is set to prevent fraudulent transactions and bridge exploits, it is causing poor user experience and discouraging users with larger funds from bridging their assets into Kaia.
The Wormhole Team is working on a Flow-Cancelling Design(link) to identify arbitrage volumes and cancel corresponding inflow and outflow activity, effectively addressing arbitrage-related volumes.
However, this is still not a complete solution as for an emerging chain like Kaia, demand for yield farming could continue to grow, keeping the daily bridge limit capped at $500k an issue. In other words, deploying a native stablecoin that eliminates the need for bridging is the only viable solution to this problem.
Challenges
With the first crypto friendly president in office, a major bull run is expected in 2025, accompanied by a significant increase in stablecoin demand. Attracting stablecoin liquidity becomes especially challenging during a bull market due to high funding rates and increased borrowing demand both onchain and offchain.
Currently, onchain stable yields offer depositors attractive returns of around 20 percent. Single asset staking options include Hyperliquid’s HLP with platform fees and MM fees, Pendle’s PTs with fixed yields for stables, Ethena’s sUSDe with basis trading yields, and so on and so forth.
Hyperliquid HLP
Pendle PTs
Ethena sUSDe
Thus, in order to attract stablecoin liquidity into Kaia, we have had to manage a massive burn rate to try to provide higher and competitive yields for stablecoin farmers, with yields going as high as 40% to 50% for stablecoin pairs in D2I DEX pairs.
CapyBara Stablepool APR
Dragonswap Stablepool APR
However, this tactic has not been as successful as anticipated, mainly because of the fact that other chains were able to offer speculative premiums linked to potential token airdrops in the future.
Our Game Plan: The Digital Dollar Gateway in Asia
As the largest Layer 1 in the APAC region and the only Layer 1 capable of bridging over 200 million Web 2 users into Web 3, Kaia is uniquely positioned to introduce stablecoins to the mainstream.
In Q1 2025, we plan to launch a native stablecoin, targeting billions of dollars in transactions within LINE and addressing inefficiencies in current payment systems. LINE’s superapp infrastructure, with an MAU of 196 million, dominates Asia’s digital ecosystem, serving high-value, high-ARPU users in Japan, Thailand, Taiwan, and Indonesia. Our ultimate goal is to integrate Web3 services across LINE’s ecosystem, based on an exclusive partnership with LINE NEXT, to onboard hundreds of millions of Web2 users and bring untapped liquidity into Web3.
This initiative leverages the seamlessly integrated and familiar UX/UI of LINE, allowing users to transact onchain without realizing it as they pay for in-game cosmetics, items, and boosts within Mini Dapps using stablecoins—all within the LINE environment. Through our Mini Dapp infrastructure and the integration of native stablecoins, we aim to drive onchain adoption and transactions for millions of Kaia Wallet users on LINE.
In this context, stablecoins represent the gateway to a digital dollar economy in Asia, where the dollar maintains a near-total dominance in digital markets, even as its share in physical markets declines.
By positioning Kaia as the exclusive stablecoin distributor within LINE’s ecosystem, we aim to establish Kaia as Asia’s dollar gateway, leading the digital currency revolution. With LINE’s 200 million users holding just $100 each in stablecoins, this could translate to $20 billion in liquidity, marking a transformative milestone for the onchain economy. Additionally, to scale stablecoin liquidity onchain and address challenges like daily bridging limits in third party bridges, we aim to secure network support from major CEXes and integrate on/off-ramp solutions by the first half of 2025.
The reason why getting support from major CEXes is important is because a substantial amount of stablecoin liquidity tends to stay in CEXes, where stablecoins are used as alternatives for USD when trading both in the spot and perps market.
For example, 9 out of the top 10 wallets of USDT on Ethereum are related to CEXes(link) while 5 out of the top 5 wallets of USDT on Arbitrum are related to CEXes(link). Thus in the long run, we will have to get network support from CEXes in order to scale the size of our onchain stablecoin economy.
However, to gain support from CEXes, we must first demonstrate demand for stablecoin minting on Kaia, supported by a sufficient TVL to make a compelling case.
In order to do this, in the interim period of ‘25 Q1 and Q4, we will work on multiple sectors that can help us scale stablecoin liquidity onchain, which include, but are not limited to, initiatives in 1) DeFi, 2) Mini Dapp payments, and 3) RWAs.
As for 1) DeFi, there are several ways to grow stablecoin liquidity onchain:
- Perpetual Futures(the “Perps”): This approach has been effective, as demonstrated by Hyperliquid, which currently holds a 64 percent share of USDC on Arbitrum.
- Yield Stripping Derivatives(the “YSDs”): Platforms like Pendle Finance attract liquidity by catering to both fixed-yield investors seeking stablecoin PTs and speculative traders investing in YTs.
- Synthetic Dollar Protocols(the “Synths”): Examples like Avalon USDa show how these protocols require deep onchain liquidity to stabilize token prices by matching bid and ask flows at different times.
- LSTs/LRTs combined with Money Markets(the “LSTs/LRTs”): Proven to be successful in platforms like Morpho, where curated vaults for stablecoins are largely borrowed by LSTs/LRTs.
- Offchain Payment Rails combined with Money Markets(the “Payment Rails”): Moonwell illustrates this approach, enabling users to directly utilize USDC deposits for daily spending, thereby attracting stablecoin liquidity.
We will strategically evaluate all these approaches to ensure the success and growth of the initiative, prioritizing efforts based on impact and feasibility.
For more context, If a chain accumulates sufficient stablecoin liquidity, it naturally attracts blue chip assets such as KAIA, ETH, BTC, and LSTs/LRTs (native coin derivatives) into the DeFi ecosystem. This is because investors often borrow stablecoins against their blue chip collateral, whether to leverage their positions or simply take out loans. This trend is evident in curated vaults on Morpho, with notable examples like Steakhouse USDC, Gauntlet USDT Prime, Steakhouse USDT. Furthermore, when there is a strong demand for borrowing stablecoins, it drives further inflows of stablecoin liquidity, creating a virtuous cycle of capital flowing into the chain.
Vault Allocation Breakdown(Steakhouse USDC)
Vault Allocation Breakdown(Guantlet USDT Prime)
Vault Allocation Breakdown(Steakhouse USDT)
As for 2) mini dapp payments, we are exploring ways of introducing native stablecoin payments for mini dapps on LINE Messenger, with a tentative plan to create an experience similar to Telegram’s Stars payment system.
Payments would be settled in native stablecoins, eliminating the need for traditional fiat gateways or reliance on external payment providers. Users could just simply select items, confirm payments through Kaia Wallet, and receive instant confirmations for their purchases. This would allow users to browse, purchase, and complete transactions directly within the Line Messenger interface, using stablecoins native to the Kaia network.
However, it is important to state that this initiative is still under consideration and is subject to further discussion and feasibility assessments. But if implemented, it could serve as a key component in our broader efforts to increase stablecoin adoption on Kaia.
Last but not least, regarding 3) RWAs, addressing the critical challenge of lacking a native stablecoin infrastructure onchain, which is essential for on/off ramping, purchasing RWAs, and transferring yields from offchain to onchain, will enable faster adoption and unlock more use cases within Kaia. The native stablecoin infrastructure will not only expedite the deployment of products developed in collaboration with the Foundation, such as Joob and Galactica, but will also support independent builders like Creder and MVL.
Structure and Timeline of the Initiative
The structure of the initiative can be broken down to two stages:
- Integration Stage: Integration of native stablecoin and securing network support from major CEXes and on/offramp solutions (targeting H1 2025).
- Scaling Stage: Support the growth of onchain stablecoin liquidity through DeFi, mini dapp payments, and RWAs. This stage will begin immediately after the Integration Stage.
The Integration Stage is expected to be completed within the first half of 2025, with the majority of the budget allocated to this phase. The Scaling Stage will commence immediately after the native stablecoin integration is completed.
Regarding the timeline for the proposal, we will gather community feedback and hold a vote. The specifics are as follows:
Discussion on Kaia Forum
- January 18th(Sat), 2025 ~ January 25th(Sat), 2025
Governance Council Meeting
- January 23rd(Thu), 2025
Post proposal and prepare for voting on Kaia Square
- January 25th(Sat), 2025 ~ February 1st(Sat), 2025
Vote on Kaia Square
- February 1st(Sat), 2025 ~ February 8th(Sat), 2025
Budget
We propose allocating 60,000,000 KAIA for this initiative. Of this amount, 20,000,000 KAIA will be rolled over from the D2I Program (link), and 40,000,000 KAIA will be newly earmarked for the initiative.
The rolled over amount from the D2I Program represents funds not earmarked for the D2I builders, as we have already onboarded teams responsible for building and sustaining the chain’s basic financial layer. These remaining funds will be repurposed for the stablecoin initiative, given the close relationship between stablecoins and DeFi.
These funds will be used strictly on an as-needed basis, meaning any unused portion will be returned to the treasury. The total cap is set at 60,000,000 KAIA, with full transparency on fund usage and a commitment to returning any unutilized funds.