The Battle for Pegged Asset Trading

Author: tokenbrice

Compiled by: LlamaC

The early stages of pegged asset trading (2018-2019)

Back in the day, over five years ago, the only options available for trading on mainnet were Uniswap, Bancor, and clunky order-book-based decentralized exchanges (DEXs) like EtherDelta. As a result, our options for trading pegged assets were severely limited, and we were forced to use Uniswap V2's USDC/USDT pool, which was practically insane.

Let's focus on this historical anecdote to understand the extent of the waste. For liquidity pools, the key parameter is the relative price movement of the two assets: if you've participated in any volatile liquidity provision (LP) scenario, you're familiar with this. For example, if you're providing liquidity for LINK/ETH, the biggest pain point of volatility is that if ETH skyrockets and LINK plummets, your LP holdings will decrease in ETH (as the price increases) and increase in LINK (as the price decreases).

However, USDC/USDT is a different story. The two assets are highly correlated, with a maximum price difference of around 10% during one specific event (the USDC SVB depeg); under normal circumstances, the price difference between the two is only within a basis point range. However, UNIv2 distributes liquidity across the entire price range, meaning it distributes an equal amount of liquidity anywhere between 1 USDC = 0.0000000001 USDT and 1 USDC = 10000000000000 USDT. Simply put: 99.9% of the liquidity in UNIv2_USDC/USDT will never be utilized. I think this will be more clear on a chart:

 x*y=k and StableSwap

The only valuable liquidity (assuming 1 USDC ≃ 1 USDT) is located at the intersection of the two green lines, which accounts for only a very small part of the entire liquidity distribution curve.

On the other hand, notice the stablecoin (stableswap) liquidity distribution shown in blue in the same chart. For assets with similar prices, the area covered by this curve is much larger than the case under the Uniswap invariant.

The StableSwap Revolution for Pegged Asset Trading (2020)

Once StableSwap launched, stablecoin liquidity quickly migrated there due to its significantly improved efficiency (we're talking over 100x efficiency improvements over UNIv2). It was the first instance of centralized liquidity on mainnet, predating UNIv3. A direct comparison between the two is difficult, as UNIv3 is more flexible, while Curve-StableSwap is more focused; however, credit should be given where it's due. Beyond its efficiency gains, Curve also offers an incentive model—veCRV+CRV incentives—which we've covered numerous times in this blog.

Incentives are crucial for pegged asset pairs because they have some specific characteristics: They typically have lower overall trading volume than more volatile pairs LPs are able to charge much lower fees (until recently, typical fees for volatile assets were 0.3% to 1% per trade, compared to 0.05% for pegged assets) Their trading volume exhibits spikes associated with events related to the coin (for example, the USDC depeg was one of the highest volume days in USDC history)

For all of these reasons, until recently I believed that incentives were more critical for pegged asset trading pairs than for volatile assets. However, with the emergence of Fluid DEX and EulerSwap, I no longer believe this. Before delving into them, however, we must first recall another important milestone in the history of pegged asset liquidity: the launch of Uniswap V3.

The arrival of Uniswap V3 centralized liquidity (2021)

The launch of Uniswap V3 provided customizable, centralized liquidity for virtually all asset types, significantly improving efficiency for all liquidity providers. However, since it applies beyond pegged assets, this also meant that limited partners working with volatile assets faced higher impermanent loss. Given the innovative nature of this liquidity structure and the lack of early infrastructure, the initial rollout of UNIv3 was slow.

However, this customizable concentration brings tangible benefits, especially for a subcategory of pegged assets that I call “loose pegs”: pairs like wstETH/ETH (correlated, but wstETH is unilaterally up versus ETH), LUSD/USDC (correlated, but LUSD can trade slightly above or below the peg).

In this case, UNIv3’s centralized liquidity enabled LPs to replicate the same efficient distribution as Curve’s Stableswap, but adjusted for token price movements, again resulting in significant efficiency gains. However, the ultimate breakthrough (given the current state of the industry) didn’t occur until several years later with the emergence of Fluid DEX and EulerSwap.

Debt as Liquidity (2025)

For the sake of brevity, I won’t delve into the Fluid and EulerSwap models in this post, as I’d rather focus on their significance for liquidity construction. Simply put, Fluid has found an innovative way to transform debt into liquidity through “smart debt.”

Imagine an average user providing ETH as collateral and borrowing USDC. Does he really want USDC in particular? Most likely, he doesn't care, as long as he's borrowing a secure, USD-pegged stablecoin. He'll likely accept USDT as well.

This is exactly what Smart Debt enables. In a Smart Debt vault, a borrower borrows a constantly changing combination of USDC and USDT: their debt now acts as liquidity in the USDC/USDT trading pair. For the borrower, this means lower borrowing costs, as they can now earn transaction fees, potentially offsetting the interest on their loan.

That's from the borrower's perspective, but now let's switch to the protocol's mindset. What does this mean for Circle and Tether? Essentially, nearly costless liquidity with no incentives. This isn't new for Circle, which has been supported by the entire ecosystem for years — but it's significant for other stablecoins like GHO, BOLD, or FRAX.

I’m focusing on Fluid here, but the concept is similar to EulerSwap, albeit with a different implementation. EulerSwap is still in beta, but has already generated significant trading volume on the USDC/USDT pair.

If you understand this, you can understand my argument, which is: “I don’t think there will ultimately be any pegged asset trading in DeFi that isn’t dominated by Euler/Fluid/similar projects.”

Still not sure? Remember these points:

Pegged asset trading pairs typically have lower trading volumes ⇒ lower fees. Therefore, on traditional decentralized exchanges, they require significant incentives to maintain liquidity. Fluid and Euler can maintain this liquidity at almost zero cost.

If the fee competition for pegged asset trading (which has already begun) turns into a "price war," the probability of a regular decentralized exchange (DEX) winning is zero.

0xOrb, a potential challenger (circa 2026)?

Now, to give you a complete picture of the entire pegged asset trading space, I must mention another project that has not yet launched but has great potential: 0xOrb. Its promise is simple: stablecoin trading, but supporting n types of assets, where n can be up to 1000.

Taking stablecoins as an example, you could imagine a super-pool with ample supply of USDC and USDT, then gradually introducing "alternative" stablecoins and providing excellent liquidity for trading between them and mainstream stablecoins. This approach has certain advantages for long-tail pegged assets, but I don't believe such a pool would dominate core trading volume (such as USDC<>USDT or cbBTC<>wBTC).

Additionally, such pools can enable cross-chain transactions, although I believe the benefits here are minimal or even detrimental (⇒ increased infrastructure risk and complexity without any benefits), as USDC and USDT can now be transferred 1:1 between chains at increasingly faster speeds thanks to products like CCTP.

What does this mean for existing pure-play decentralized exchange (DEX) players?

First, the most important note: we are discussing trading pegged assets here. Replicating the same strategy on more volatile pairs is much more difficult, as shown by the losses incurred by Fluid’s Smart Debt+Collateral ETH/USDC vault and its liquidity providers.

DEXes like Aerodrome, which generate the majority of their volume and fees primarily through volatility trading pairs, may be unaffected by these new entrants. However, the reality is much more challenging for DEXs focused on pegged assets, and I’d like to discuss two of these examples at the end of this article:

Curve: Unless there's a major shift, it's game over

Trading in pegged assets remains crucial for Curve, which is still considered the home of stablecoin liquidity. Indeed, attempts to capture volatile trading volume through CryptoSwap were unsuccessful.

With the arrival of Fluid and EulerSwap, I believe Curve is the DEX most likely to lose market share. I don't believe it can maintain significant trading volume (in fact, it's already been kicked out of the top ten) unless a major transformation occurs: veCRV rebrand: Optimize CRV incentives by learning from new models like veAERO. Leverage crvUSD to improve DEX efficiency: For example, by providing crvUSD loans to Curve LPs. New liquidity structures for volatile assets: so that Curve can capture relevant trading volume.

Ekubo: Confident latecomers accelerate their demise

Ekubo's situation is arguably worse, as they're a relatively recent entrant into the space. On the surface, Ekubo is a rapidly growing DEX on Ethereum with impressive trading volume. Essentially, Ekubo is a UNIv4 alternative, offering more customizable liquidity structures and a DAO with lower extraction than Uniswap (although this is still the lowest standard of any project).

The problem lies in the source of trading volume: the vast majority (over 95%) is concentrated in the USDC/USDT pair, which offers a mere 0.00005% fee and numerous incentives. Ekubo is effectively engaging in an unwinnable price war, as it cannot sustain these extremely low fees for long (liquidity providers demand a return), whereas Fluid/Euler can (if borrowers earn even 0.1% through smart debt, they are better off than without it, and therefore feel satisfied).

 ◎ Ekubo statistics, as of July 7, 2025

With a pool of $2.6 million in TVL, processing ~$130 million in daily trading volume, collecting $662 in daily fees, and incentivizing ~8% through EKUBO, they are rapidly approaching the limits of their capabilities.

The most interesting thing is that it was Ekubo itself that started this “price war” with the USDC/USDT transaction fee rate, only to lose miserably in the game of its own making. DeFi will never be boring.

As always, I hope this article has been enlightening and deepened your understanding of the pegged asset trading game. I anticipate being criticized by the Ekubo community simply for stating a fact-based opinion; their reactions will make me more confident in my own judgment, as I've observed similar responses in the following situations:

I condemned MAI's ridiculous security measures, and it was quickly hacked and de-anchored.

I condemned the manipulation and lies of R/David Garai, and within 6 months R was hacked and almost disappeared.

I criticized the Prisma team's actions, and within 12 months they were hacked and shut down the protocol.

The list goes on. Good luck to everyone.