Solana is a high-performance, decentralized network designed to host scalable applications and transactions. As the most dynamically developing ecosystem with exponential growth metrics, it is known for low-cost and super-fast transactions. With all eyes on the network as the leader of the memecoin landscape, Solana intends to be a decentralized Nasdaq and is actively working to achieve this goal. 

Solana's growth over the last few years is a culmination of a few factors—the growing supply of stablecoins like USDT and USDC is one. Per reports, stablecoin supply has grown from $3.6 billion to almost $12 billion. During the $TRUMP and $MELANIE frenzy, about $5 billion was minted in just a few days, signifying a net flow into the Web3 space. While the crypto and memecoin markets are down by 4.86% and 3.12% in 24 hours respectively, mainly due to President Trump's tariff announcement which took effect this week, I noticed something. There are practically no decentralized stablecoins on Solana. For an ecosystem that prides itself as the most suitable for TradFi, it is surprising. 

This is a vacant sector waiting to be explored. 

Parrot and Hubble—What Went Wrong? 

In September 2022, a certain “censorship resistant” Solana-based protocol—Hubble—raised $5 million via a fundraising round. The idea was to create a decentralized finance protocol behind the USDH stablecoin. Similar to Hubble is Parrot, another Solana-based DeFi protocol with a stablecoin, PAI. Both protocols, unlike USDT and USDC, claim to be backed by cryptocurrencies. 

Parrot and Hubble were imitations of MakerDAO and Liquity protocols on Ethereum. As expected, they failed. 

They were mere imitations of old designs of previously existing decentralized protocols. Also, their fundraising events were mainly sponsored by Alameda and Three Arrows Capital (3AC)—the infamous crypto hedge funds linked to the Sam Bankman-Fried and FTX crash. Allegedly, funds from FTX Exchange were used to settle debts for Alameda, leading to the fall of these companies and, indirectly, that of Hubble and Parrot. These reasons and many others led to stagnation, and when the Solana Renaissance came around, they experienced almost zero growth. 

Enter Ondo and Ethena 

Hubble and Parrot’s shortcomings did not stop developers, and rightly so. Over the last few years, we've seen the launch of protocols claiming to offer decentralized stablecoins, albeit on the Ethereum and Stellar networks. Ondo and Ethena are two of such protocols. 

  • Ethena is a decentralized stablecoin protocol that offers a synthetic dollar—USDe—for DeFi and Web3 usage. Built on the same principle as Hubble, Ethena adopts a delta hedging tactic to guarantee stability, scalability, and most importantly, censorship resistance. 

While these acclaimed decentralized stablecoin protocols have gained traction, the word “decentralized” is nothing but a trendy catchphrase to them. In reality, almost all of their infrastructure is designed on centralized solutions. One X user discussed the implication of Ethena’s high APR offering, citing liquidation, funding, and custodial risks as potential obstacles to sustainability—another challenge of this protocol. 

Introducing Hylo and Reflect—the Solana Accelerator Colosseum Winners  

The dearth of genuinely decentralized stablecoins needed fixing. Seeing an open and untapped market with a mammoth of opportunities, Solana sought to find new projects through the Colosseum—a platform combining hackathons, accelerators, and venture funds to improve Solana’s ecosystem or “supercharge” it as the website reads. 

After an extensive period of building, learning, and connecting, the Solana accelerator Colosseum chose two decentralized stablecoins as winners—Reflect and Hylo. 

Described as the Solana-based answer to Ethena, Reflect (boldly called Ethena on Solana) is different in several ways. Firstly, all parts of this protocol are decentralized—on-chain and publicly verifiable. Secondly, it takes the shape of an insurance pool where validators depeg through restaking in the Solayer and Jito protocols. Finally, it is built on Solana. Well, this is obvious, but it still means something. Here is why; implementing a similar protocol completely on-chain on Ethereum will, unfortunately, not eliminate the slow speed and steep cost problems. Solana is perfect for implementing these kinds of projects. 

Based initially on the MakerDAO and DAI designs, Hylo adds a stability pool in the form of a staked stablecoin. This will act as a protective tool as well as automatically rebalance the loan-to-collateral ratio when a certain level is reached. It, in turn, dispels the need for borrowers to constantly monitor their collateral ratio. 

Want to know what's interesting about these two projects? They can potentially provide 20% to 30% APR on stablecoins without farming. This is due to their designs—a rare sight in the crypto landscape. 

A Blue Ocean 

Reflect and Hylo are two projects that can efficiently co-exist, adding variety to the network. The decentralized stablecoin sector on Solana is a blue ocean and like always, the first to implement new concepts will capture the market and position themselves properly for growth. Based on what I've seen, there's a high chance Reflect and Hylo could be those projects, that is if their teams continue to adapt to industry dynamics. 

We’ll be on the lookout to see how they are implemented.