> For the complete documentation index, see [llms.txt](https://safu-protocol.gitbook.io/safu/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://safu-protocol.gitbook.io/safu/safuusd-an-example-of-a-product-you-could-built-on-top-of-safu/problem-statement.md).

# Problem Statement

The on-chain economy has yet to see a stablecoin that effectively combines the best characteristics of both centralized and decentralized models. Centralized stablecoins like USDC and USDT have dominated the market due to their deep liquidity, widespread adoption, and real-world use cases, such as payments. These coins benefit from the backing of centralized companies, which can bootstrap adoption and ensure compliance with regulatory standards. However, they expose users to risks inherent in traditional financial systems. For instance, the collapse of Silicon Valley Bank led to USDC depegging from $1, briefly plummeting to $0.88 . Similarly, historical events like the Argentine "corralito," where the government severely restricted cash withdrawals, illustrate how reliance on traditional banking can undermine trust and access to funds during crises . These events highlight the vulnerabilities associated with centralized financial entities, driving some users to seek alternatives.

On the other hand, decentralized stablecoins, such as RAI, LUSD, or DAI, offer an alternative that avoids exposure to TradFi assets. Yet, they fall short in critical areas that drive mass adoption, such as liquidity, real-world applicability, and regulatory compliance. Moreover, the reliance on over-collateralization limits their scalability and capital efficiency, creating a bottleneck for broader adoption. This divide between centralized and decentralized stablecoins fragments liquidity across the market, hindering the global adoption of stablecoins and reducing their overall effectiveness in the digital economy. This struggle is evident in the Total Value Locked (TVL) comparison, where decentralized options lag significantly behind centralized players like USDC and USDT.

In parallel, the emergence of EigenLayer has introduced a new dimension to decentralized finance by enabling Ether and other ERC-20 tokens to secure new services known as Actively Validated Services (AVS). Initially driven by the allure of potential airdrops, participation in EigenLayer has been robust, but as the novelty wears off, the focus is shifting to sustainable, risk-adjusted yields for AVS participants. The current yield dynamics suggest that without real utility and tangible revenue generation, the yields from AVSs will be insufficient to justify the vast amounts of staked capital. This challenge underscores the need for innovative AVSs that can deliver real yield, maintain the economic viability of EigenLayer, and, by extension, support the sustainable growth of decentralized finance.