How do native stablecoins reduce systemic risk?

Native stablecoins contribute to reducing systemic risk through the following methods:

Diversification of risk:

The introduction of multiple stablecoins, including at least one native stablecoin, helps to decrease the concentration of risk within the system. In a diversified ecosystem, if one stablecoin encounters issues, other stablecoins can partially absorb its functions, minimizing the likelihood of a complete system collapse due to a single stablecoin failure.

Advantages of native stablecoins:

Native stablecoins exist independently on each public blockchain and their value and circulation are not influenced by other chains. This independence enhances the overall system’s resilience and provides more direct and efficient transaction experiences for users on specific chains.

Mitigating cross-chain risk transmission:

As assets circulate across different chains, the issue of risk transmission becomes significant. Each public chain having its own native stablecoin reduces the potential harm of risk transmission between chains, ensuring that users on particular chains can better withstand external risk influences.

In the context of building the ICP ecosystem, incorporating diversification and at least one native stablecoin is considered a crucial strategy, as it not only helps to reduce systemic risk but also fosters a more robust, healthy, and independent public blockchain ecosystem.