Tier 2 Stablecoins

Tier 2 stablecoins are stablecoins that demonstrate evidence that thay are fully collateralised, but the mechanism might be complex, or there are additional risk exposures. We will highlight the details for each stablecoins in the sub-sections. They are (click hyperlinks for our research reports for some stablecoins):

USDT, USDe, USD3, hyUSD, USDM, M0, mTBILL, rUSD, deUSD, AUSD, reUSD, fxUSD, frxUSD

USDT: There's a challenge on USDT's fiat reserve, as they are not regulated by the USA/Europe regime.

USDe: Ethena's USDe is not a decentralised stablecoin and its reserve is managed by MPCs, which means there's no on-chain transparency. In addition, whilst limited by MPC custodians, USDe does have some off-chain exposures to CEXs like Binance, Bybit and OKX.

USD3 and hyUSD: full collateralised stablecoins by Reserve Protocol. They can be redeemed at any time with quality underlyings. They are small in size, the main reason we rate them Tier 2.

USDM: Mountain Protocol's stablecoins backed by Treasury bill investments. We rely on S&P and Bluechip's ratings to accept this as a Tier 2 stablecoin. After Mountain Protocol's acquisition by Anchorage, USDM will wind down in early June.

M0: M Protocol's stablecoin, a off-chain collateralised stablecoin. It's relatively small and new but with a solid structure.

mTBILL: Stablecoin by Midas. Similar to M0, with T-bills as underlyings. Whilst it has a solid structure, its market cap is small.

rUSD: Stablecoin by Reservoir, a project under FortunaFi. Collateralised by T-bills and other on-chain assets.

deUSD: Stablecoin by Elixir, which has a working relationship with Securitize. deUSD is mostly collateralised by sUSDS, with some off-chain exposure in funding rate hedging in CEXs.

AUSD: Stablecoin by Agora, fiat-backed. It has a reasonable size but it's relatively new.

reUSD: Resupply Finance's stablecoin, over-collateralised by lending receipts from CurveLend and FraxLend. Team was associated with Convex and Yearn. We keep it as Tier 2 due to a portion of its collaterals being frxUSD.

fxUSD: Over-collateralised assets by f(x) Protocol, one of the products of AladdinDAO. It has solid on-chain collaterals, but the mechanism is unique and lacks a bit market reception.

frxUSD (prev. FRAX): Reputatable and well-adopted stablecoin by Frax Finance, one of earliest DeFi OG protocols. Our concern on frxUSD is its protocol owned liquidity. We note that from May 2025 onwards, FRAX is no longer 1:1 exchangable to frxUSD but at market price. This means frxUSD is well-collateralised by its RWA holdings and does not inherite the debt from FRAX. On the other hand, we think FRAX is under-collateralised and do not provide a rating to it.