Introduction

Collateralized Debt Positions (CDPs) are a foundational mechanism in decentralized finance, allowing users to borrow against crypto assets without selling them. By locking collateral into smart contracts, CDPs mint stablecoins or provide loans, enabling liquidity creation in a decentralized manner (Collateralized Debt Position (CDP) - Faisal Khan). This report examines the multifaceted role of CDPs in DeFi – from their economic impact and ideal use cases on various blockchains, to historical growth trends, notable successes and failures, and specific considerations for networks like TON, Solana, and Ethereum. The goal is to provide a comprehensive analysis of how CDPs have shaped DeFi and why Ethereum leads in this domain, supported by data and case studies.

Relevance of CDPs in DeFi

CDPs have had significant economic and financial impact in DeFi by unlocking liquidity and enabling decentralized stablecoins. In essence, a CDP lets a user deposit cryptocurrency (e.g. ETH) as collateral and borrow a stablecoin (like DAI) against it (Collateralized Debt Position (CDP) - Faisal Khan). This means users can access liquidity without selling their crypto assets, preserving their long-term positions while obtaining funds for other uses (Collateralized Debt Position (CDP) - Faisal Khan). The stablecoins generated (such as DAI from MakerDAO) serve as critical liquidity in DeFi, providing a stable medium of exchange and unit of account for trading, lending, and yield farming. For example, DAI – created via CDPs – is used widely across lending protocols and DEXs as a base asset for loans and trading pairs, fueling the growth of DeFi markets (MakerDAO’s DAI and DeFi for Collateralized Loans | Gemini). By allowing anyone to mint stablecoins on-demand by locking collateral, CDPs effectively bootstrap liquidity in a decentralized way. They also enable leveraged positions (borrowed stablecoin can be re-invested), thereby increasing capital efficiency for traders and yield-seekers (Collateralized Debt Position (CDP) - Faisal Khan). Overall, CDPs play a pivotal role in DeFi’s credit and stablecoin infrastructure – they are the mechanism behind decentralized stablecoins like DAI, which in turn underpin large swathes of liquidity provision, lending, and trading activity in the ecosystem (Collateralized Debt Position (CDP) - Faisal Khan) (Collateralized Debt Position (CDP) - Faisal Khan). Without CDPs, the DeFi boom might have been far more limited, as these instruments introduced a trustless way to borrow and create stable value, making them “one of the pillars of Decentralized Finance” (MakerDAO Overview).

Ideal Market Fit for CDPs

CDPs thrive best on blockchains that have a robust smart contract platform, active DeFi ecosystems, and a need for decentralized stable value. Ethereum exemplifies the ideal market fit – it was the first to host a major CDP system (MakerDAO’s DAI) and had the developer community and demand needed to make it successful. Ethereum’s open, composable DeFi environment meant that DAI could be easily integrated into countless dApps, from lending pools to DEXs, creating a network effect driving adoption (MakerDAO’s DAI and DeFi for Collateralized Loans | Gemini). Blockchains lacking native or widely adopted fiat-backed stablecoins benefit greatly from CDPs; for instance, Ethereum in 2017 had no major stablecoin until DAI, so a crypto-collateralized stablecoin filled a crucial gap. In contrast, networks that already have dominant centralized stablecoins often see less traction for CDP-based alternatives. For example, Tron introduced a CDP-based stablecoin (USDJ, via the JUST ecosystem) that allows users to lock TRX as collateral to mint USDJ (What is USDJ?). However, Tron’s stablecoin usage is overwhelmingly dominated by Tether’s USDT – nearly 98% of Tron’s stablecoin supply is USDT (Stablecoin and memecoin frenzy drive Tron’s adoption: Report) – leaving little room for USDJ to gain broad usage. Tron’s DeFi users simply prefer the liquidity and simplicity of established stablecoins, so its CDP stablecoin remains peripheral.

Other ecosystems have experimented with CDPs with mixed results. Binance Smart Chain (BNB Chain) launched the Venus protocol, which issues the VAI stablecoin via CDPs on BSC. VAI initially aimed to mirror MakerDAO’s success on BSC, but it struggled to maintain its $1 peg consistently, highlighting how challenging it is to bootstrap trust and demand from scratch (Venus eventually introduced peg stability modules and fees to address off-peg issues). Cosmos via Kava created the USDX stablecoin using cross-chain collateral, achieving some usage within the Cosmos ecosystem, though its scale remained modest relative to Ethereum’s DAI. Polkadot’s DeFi hub Acala introduced aUSD as a CDP-backed stablecoin, but a technical exploit led to a massive over-issuance and crash of aUSD’s value (Comprehensive List of Failed Stablecoins - ChainSec), undermining confidence. These cases underscore that the most receptive markets for CDPs have been those with strong decentralization ethos, developer support, and clear gaps in stablecoin availability. Ethereum had all these factors, whereas more centralized or insular ecosystems (or those already saturated with fiat-backed stablecoins) saw less necessity for CDP-born stablecoins. Community trust and integration opportunities are key drivers: MakerDAO’s DAI succeeded not just due to being first, but because it was embraced by dApp developers and users as a core building block. In contrast, on networks where users are content with centralized stables (Tron, BSC) or where DeFi activity is nascent, CDPs have a harder time finding product-market fit. Ultimately, CDPs tend to flourish on open finance platforms with high liquidity and a demand for censorship-resistant stable value, whereas they face headwinds on networks that prioritize centralized solutions or lack the infrastructure (or appetite) to support complex lending mechanisms.

Historical Performance and TVL Trends of CDPs

The evolution of CDPs is closely intertwined with the rise of DeFi itself. In the early days (pre-2018), before CDP-based stablecoins existed, DeFi’s total value locked (TVL) was negligible (image). The concept of locking crypto to generate stable liquidity was novel – protocols like MakerDAO were just being conceived. The chart above shows that prior to MakerDAO’s launch, DeFi TVL remained near-zero, highlighting how little on-chain lending or stablecoin activity existed before CDPs emerged.

(image) Once MakerDAO and its Single-Collateral DAI (SAI) went live (late 2017), DeFi TVL began to rise. From 2018 through early 2020, CDPs almost single-handedly bootstrapped DeFi’s growth. The figure above (spanning up to June 1, 2020) illustrates that nearly all of the DeFi TVL at the time was concentrated in CDP platforms (primarily MakerDAO). By mid-2020, roughly on the eve of the “DeFi summer,” total DeFi TVL was on the order of one billion USD – and the majority of that was locked in MakerDAO CDPs and a few similar systems (image). In other words, CDPs were the fundamental building block that attracted the first big wave of on-chain capital, as users locked ETH to mint DAI or other collateral-backed stablecoins. This period demonstrated the bootstrap effect of CDPs: they create stablecoins that can then flow into nascent lending and trading protocols, seeding those with liquidity. Indeed, early DeFi lending markets and DEXs often used DAI as a key base asset, so the growth of DAI (through CDPs) directly fed liquidity into other protocols.

(image) Post mid-2020, the DeFi landscape expanded dramatically. Yield farming and new protocols (DEXs like Uniswap, lending platforms like Compound/Aave, etc.) caused total DeFi TVL to explode to tens of billions by 2021. During this DeFi summer and beyond, CDP-based platforms continued to grow in absolute terms, but their share of overall TVL declined as the ecosystem diversified. The chart above (covering the “after CDP” phase) shows that while CDPs remained a fundamental layer – their TVL plateaued relative to the exponential growth of other DeFi sectors. MakerDAO’s DAI issuance did increase significantly (multi-collateral DAI launched in late 2019, and by 2021 DAI’s supply and Maker’s collateral vaults grew into the billions), but new entrants outpaced CDPs in drawing TVL. By late 2020, liquidity mining incentives meant lending and DEX protocols amassed large TVL, and by 2021 asset management and yield aggregators further diluted the CDP share. Still, CDPs never lost their importance – they consistently provided a stablecoin backbone and “lender of last resort” functionality (e.g. people mint DAI when other stablecoin liquidity is tight).

(image) The overall trend can be seen in the comparison of Total DeFi TVL vs. Total CDP TVL (above). CDP TVL (the lower line) grew steadily from 2018 onward, reaching a plateau in the tens of billions (MakerDAO and a handful of similar protocols). Meanwhile, total DeFi TVL (upper line) accelerated sharply after mid-2020, far outpacing the growth of CDPs. At DeFi’s peak (late 2021), CDP platforms still held a substantial amount – on the order of ~$10B+ in collateral – but this was only a fraction of the ~$100B+ total DeFi TVL across all sectors. In summary, CDPs sparked the initial rise of DeFi (2018–2020) by contributing the bulk of early TVL, and thereafter continued growing more linearly while the rest of DeFi skyrocketed. They remain a crucial component (providing on-chain stablecoins and credit), though no longer the majority of TVL post-2020 as the ecosystem matured and diversified. Notably, even as of today, MakerDAO’s CDP system is still one of the largest single DeFi dapps by TVL – indicating that the concept has long-term staying power even as new innovations have joined the fray.

Success and Failure Cases of CDP Projects

Throughout the years, we have seen some CDP-based projects achieve massive adoption while others struggled or failed to gain traction. MakerDAO (Ethereum) is the canonical success story. Launched in 2017, MakerDAO pioneered the CDP model and introduced DAI, a crypto-collateralized stablecoin. Its success can be attributed to several factors: a sound design (over-collateralization + automated liquidation to ensure solvency), strong governance and risk management, first-mover advantage, and deep integration into the DeFi ecosystem. MakerDAO’s resilience through events like the 2020 crypto crash (where DAI briefly faced liquidity crises) ultimately validated the CDP model – the system survived extreme volatility and kept DAI roughly pegged, proving the robustness of the mechanism (Crypto-backed stablecoins are broken — Caesar) (Crypto-backed stablecoins are broken — Caesar). Over time, Maker expanded to support multiple collateral types and today remains the largest decentralized stablecoin platform (about $5B DAI in circulation) (Crypto-backed stablecoins are broken — Caesar) (Crypto-backed stablecoins are broken — Caesar). In fact, “with over $8 billion in TVL and standing out as one of the largest success stories in crypto history, Maker has been the face of DeFi since its inception, remaining dominant and adaptive to this day” (MakerDAO Overview). This underlines how a well-executed CDP protocol can achieve not just product-market fit but become foundational to an entire blockchain’s economy.

In contrast, many other CDP-style projects failed or saw limited uptake. An early example is BitShares’ BitUSD (launched in 2014), one of the first crypto-collateralized stablecoins. BitUSD was backed by BitShares (BTS) tokens via a CDP-like mechanism, but it had design flaws and ultimately lost its peg in 2018, never regaining $1 (Comprehensive List of Failed Stablecoins - ChainSec). The failure was attributed to an inadequate stability mechanism (it relied on market psychology and didn’t sufficiently protect against scenarios where collateral value plunged) (Comprehensive List of Failed Stablecoins - ChainSec). BitUSD’s collapse demonstrated that without robust peg management and trust, a collateralized stablecoin can rapidly become unusable. In recent years, several CDP projects on newer chains failed to gain traction chiefly due to lack of user adoption. For instance, on Solana, projects like Parrot’s PAI and Hubble Protocol’s USDH attempted to emulate DAI’s model, but their combined circulating supply remained around a mere $15 million – trivial compared to established stablecoins (Solana projects set to challenge Circle and Tether dominance in $3 billion stablecoin market – DL News). These projects struggled to attract users and liquidity, and in the case of Solana’s algorithmic-hedged stablecoin UXD, the team ultimately decided to wind down the project in 2024. The UXD team cited “lack of liquidity and [that] the stablecoin model isn’t exciting enough for DeFi users and does not offer enough advantage over centralized stablecoins” as reasons for shutting down (Solana protocol with $7.5m in deposits shuts down as its model ‘isn’t exciting enough’ for DeFi users – DL News). This highlights a common failure mode: if a decentralized stablecoin doesn’t substantially improve on convenience or trust relative to USDT/USDC, users may simply ignore it. Likewise, on Polkadot’s Acala network, the aUSD CDP stablecoin’s momentum was crushed by a hack that minted 1.2 billion aUSD out of thin air (Comprehensive List of Failed Stablecoins - ChainSec) – a catastrophic loss of confidence from which the project couldn’t recover.

From these cases, a few key success factors emerge: (1) Robust design and risk controls – Maker’s over-collateralization and active governance of stability fees kept DAI largely stable, whereas weaker designs (BitUSD) or smart contract vulnerabilities (aUSD) led to failure. (2) Sufficient liquidity and integrations – DAI became useful because many platforms accepted it, creating demand; projects that remained siloed or had low liquidity saw a vicious cycle of low usage. (3) Community and governance – Maker’s active governance community helped steer it through crises and adapt (e.g. adding new collateral types), whereas abandoned or poorly maintained projects faded. Conversely, reasons for failure often include poor peg stability mechanisms, lack of market demand (especially when competing against fiat-backed coins), and technical shortcomings. As one analysis succinctly noted, crypto-backed stablecoins that “failed to attract users” generally suffered from capital inefficiency, liquidation risks, limited use cases, and low liquidity compared to fiat-backed alternatives (Crypto-backed stablecoins are broken — Caesar). Thus, while CDPs are powerful, they require meticulous implementation and an environment conducive to decentralized alternatives in order to succeed at scale.

CDPs in TON (The Open Network)

The Open Network (TON) is a newer blockchain that is exploring CDP-based stablecoins, though it is still in early stages of DeFi development. TON was initially designed by Telegram and uses a unique architecture (different from Ethereum’s EVM), but it has the necessary smart contract capabilities to implement CDPs. Technically, CDPs on TON are feasible – and in fact, recent TON-based projects demonstrate this. In late 2024, two CDP-style stablecoin platforms on TON, Aqua Protocol and Delea, achieved a milestone of over $9 million combined TVL (Aqua & Delea Hit Record TVL as TON Stablecoin Projects Gain Traction - NFTgators) (Aqua & Delea Hit Record TVL as TON Stablecoin Projects Gain Traction - NFTgators). These protocols borrow from MakerDAO’s model, allowing users to deposit collateral (TON coins or other assets) and mint TON-native stablecoins. The adoption so far is modest (single-digit millions in TVL is tiny compared to Ethereum’s CDP platforms), but it proves that TON’s smart contracts can handle CDP logic. Aqua, for example, lets users lock Toncoin and even wrapped USDT to mint a stablecoin (AquaUSD) (Aqua & Delea Hit Record TVL as TON Stablecoin Projects Gain Traction - NFTgators). The reliance on USDT as collateral (nearly 100% of Aqua’s deposits are USDT (Aqua & Delea Hit Record TVL as TON Stablecoin Projects Gain Traction - NFTgators)) suggests that TON’s ecosystem is bootstrapping its stablecoin with help from an existing stable asset – a pragmatic approach to achieve stability and trust initially.

When evaluating TON for CDPs, several factors come into play:

• Decentralization: TON is a proof-of-stake network with a limited validator set. It currently has on the order of a few hundred validators (around 384 active validators) (The validator debate: how many are needed for true blockchain decentralization? | CryptoTvplus - The Leading Blockchain Media Firm), which is far fewer than Ethereum’s validator count (over 1.6 million) (The validator debate: how many are needed for true blockchain decentralization? | CryptoTvplus - The Leading Blockchain Media Firm). This implies TON is less decentralized than Ethereum and even Solana (1000+ validators) (The validator debate: how many are needed for true blockchain decentralization? | CryptoTvplus - The Leading Blockchain Media Firm). A lower level of decentralization could be a risk factor for CDPs – for instance, if a small number of validators collude or the network halts, it can affect price oracles or liquidations. However, 384 validators is still a sizeable group, and TON’s developers are aiming to increase decentralization over time. For CDP purposes, as long as the network remains Byzantine fault tolerant and secure, the main impact of fewer validators is on perception (some DeFi users may trust it less than Ethereum) and possibly on uptime (though TON has not had major downtime reports).

• DeFi Infrastructure: TON’s DeFi ecosystem is in its infancy. Aside from the mentioned stablecoin projects, TON has a few DEXs and yield farms (e.g., StonFi, DeDust) and some liquidity staking derivatives (Aqua & Delea Hit Record TVL as TON Stablecoin Projects Gain Traction - NFTgators). The current DeFi liquidity on TON is low, which means a CDP-based stablecoin might have limited places to be utilized. In contrast to Ethereum (where a new stablecoin can quickly find use in many dApps), on TON the stablecoin’s utility might be constrained to just a handful of platforms. This chicken-and-egg problem is common – to succeed, a stablecoin needs an ecosystem of lenders, traders, etc., but those ecosystems themselves need users and assets. The recent growth of Aqua and Delea suggests some momentum, possibly driven by yield incentives (users mint the stablecoin to farm yields on TON DEXs) (Aqua & Delea Hit Record TVL as TON Stablecoin Projects Gain Traction - NFTgators). Over time, if TON’s DeFi matures, a CDP stablecoin could become a linchpin of its economy, much like DAI on Ethereum, but reaching that point will require significantly more total liquidity and more dApps on TON.

• Liquidity and User Base: One advantage TON has is its integration with Telegram, giving it a large potential user base. If even a fraction of Telegram’s users start using TON wallets, there could be demand for a native stablecoin (for payments, trading, etc.). Currently, though, much of TON’s on-chain liquidity comes from bridged or centralized assets – for example, Tether’s USDT has been issued on TON, and by early 2025 the total stablecoin market cap on TON was around $900M (primarily USDT) (TON - DefiLlama). That indicates people are bringing liquidity to TON, but they are relying on established stablecoins. A CDP-based stablecoin on TON would have to compete with (or complement) USDT. The early design of Aqua actually uses USDT as collateral, effectively making AquaUSD a re-collateralized version of USDT (Aqua & Delea Hit Record TVL as TON Stablecoin Projects Gain Traction - NFTgators). This raises some questions: if users already have USDT on TON, do they need a CDP stablecoin? The answer may hinge on decentralization – some users might prefer a truly decentralized stablecoin that isn’t directly dependent on Tether. If TON’s ethos leans towards decentralization and censorship-resistance, that could drive adoption of CDP stablecoins in the long run, especially for on-chain activities.

• Smart Contract Capabilities: TON’s smart contracts (written in languages like FunC for the TON Virtual Machine) are powerful enough to implement the complex logic of CDPs (vault accounting, collateral ratio checks, liquidations, etc.). The existence of functioning prototypes (Aqua, Delea) confirms TON can handle it. One consideration is security – TON’s smart contract ecosystem is newer, with fewer auditors and battle-tested templates compared to Ethereum’s vast repository of DeFi contracts. Any CDP implementation must be extremely careful with auditing to avoid exploits. Additionally, price oracles are crucial for CDPs; TON will need reliable oracle feeds for asset prices to know when to liquidate. It’s unclear if TON has native oracle solutions or if it relies on cross-chain oracles, but a robust oracle mechanism is a prerequisite for safe CDPs.

In summary, TON is technically capable of hosting CDPs, and initial deployments have begun, but the ecosystem’s immaturity means CDPs on TON will face an uphill battle to achieve the scale seen on Ethereum. The network’s moderate decentralization and small DeFi scene are the main constraints. If TON’s community prioritizes decentralized finance and grows its liquidity, CDPs could become a cornerstone (providing a homegrown stablecoin for TON). The success of TON CDPs will depend on whether they can attract enough users away from simply using bridged coins like USDT. Given TON’s trajectory, it’s plausible that CDPs will play a role in its DeFi expansion, but significant growth (and possibly more decentralization) is needed for them to have an impact comparable to Ethereum’s.

CDPs in Solana: Why They Didn’t Gain Traction

Solana is a high-performance blockchain that saw a DeFi boom in 2021, yet CDP-based stablecoins on Solana failed to gain much traction. Both technical factors and market dynamics contributed to this outcome:

• Dominance of Centralized Stablecoins: Solana’s DeFi users had easy access to fiat-backed stablecoins (mainly USDC and USDT) from the start. Circle’s USDC was natively integrated into Solana early on, providing a trusted stablecoin for transactions. By 2024, USDC and USDT accounted for about 99% of the stablecoin market on Solana (Solana projects set to challenge Circle and Tether dominance in $3 billion stablecoin market – DL News). This left a sliver of the market to any would-be decentralized stablecoin. Users and protocols were already using USDC at massive scale (Solana’s total stablecoin supply reached over $10–11B, mostly USDC (Solana Stablecoins Market - DefiLlama)). In this environment, new CDP-issued stablecoins faced an uphill battle to justify their existence. Indeed, Solana’s previous attempts at crypto-backed stables “failed to gain any traction” (Solana projects set to challenge Circle and Tether dominance in $3 billion stablecoin market – DL News) (Solana projects set to challenge Circle and Tether dominance in $3 billion stablecoin market – DL News). There was simply little demand to switch from highly liquid, stable USDC/USDT to a more experimental alternative.

• Late and Limited Launches: Several Solana projects did try to create CDP stablecoins. Notably, Parrot Protocol’s PAI and Hubble Protocol’s USDH launched in 2021-2022, aiming to be Solana’s answer to DAI. However, their adoption remained minimal. As of early 2024, the combined circulating supply of PAI, USDH (and another project UXD) was only about $15 million (Solana projects set to challenge Circle and Tether dominance in $3 billion stablecoin market – DL News) (Solana projects set to challenge Circle and Tether dominance in $3 billion stablecoin market – DL News) – an almost insignificant figure next to Solana’s $10B+ stablecoin usage. These projects never became core building blocks in Solana DeFi. One reason is timing: by the time they launched, Solana’s DeFi had already coalesced around USDC for stable liquidity (for example, lending protocols like Solend primarily use USDC/USDT markets). There was no vacuum for them to fill; at best they could offer a decentralized ethos, but most users prioritized liquidity and reliability, which USDC provided. The failure of earlier Solana stablecoin attempts (like PAI, USDH) created a perception that such projects were niche. In August 2024, UXD (which was a somewhat different model involving algorithmic hedging) announced it would wind down operations and return funds to users, citing inability to achieve product-market fit (Solana protocol with $7.5m in deposits shuts down as its model ‘isn’t exciting enough’ for DeFi users – DL News) (Solana protocol with $7.5m in deposits shuts down as its model ‘isn’t exciting enough’ for DeFi users – DL News). The UXD team explicitly stated that, while their stablecoin mechanism worked to hold the peg, it “is not exciting enough for DeFi users and does not offer enough advantage over centralised stablecoins” (Solana protocol with $7.5m in deposits shuts down as its model ‘isn’t exciting enough’ for DeFi users – DL News). This sentiment likely applies broadly – Solana users didn’t see a compelling reason to use a CDP stablecoin when USDC was so readily available and integrated.

• Maturity of DeFi Infrastructure: Solana’s DeFi ecosystem, though rapidly growing in 2021, was still less mature than Ethereum’s. Fewer developers and protocols focused on CDPs initially, as they were busy building DEXs (Serum), lending platforms (Solend, Jet), and other primitives. Anders Jorgensen of MarginFi noted that “Solana’s still really early… there hasn’t been as many devs as the EVM ecosystem, and the really quality teams have just pursued other primitives so far.” (Solana projects set to challenge Circle and Tether dominance in $3 billion stablecoin market – DL News). In other words, Solana’s top talent went into making use-case-specific protocols and optimizing Solana’s unique strengths (like high-speed order books), rather than duplicating Ethereum’s CDP model early on. By the time teams tried to introduce crypto-backed stablecoins, the ecosystem’s needs were largely being met by existing solutions. Additionally, integration opportunities for a new stablecoin were limited – a stablecoin becomes more useful when many platforms support it, but convincing a slew of Solana dApps to add support for PAI or USDH (instead of just defaulting to USDC) was challenging. Lacking a broad base of integration, these stablecoins never achieved a self-sustaining network effect.

• Technical and Network Considerations: Solana’s high throughput design is a double-edged sword for something like CDPs. On one hand, Solana can handle liquidation bots and oracle updates very fast. On the other hand, Solana suffered a few network outages and congestion events during 2021-2022. If the network is down or congested, it could prevent timely CDP liquidations – a critical risk for a lending protocol. There was an incident in early 2022 where Solana congestion contributed to widespread liquidation issues in lending markets (Latest Solana Clog Causes Liquidation Bloodbath - Crypto Briefing) (Latest Solana Clog Causes Liquidation Bloodbath - Crypto Briefing). Such events may have made users and developers wary of relying on Solana for something as sensitive as a collateralized stablecoin (where a delayed liquidation can mean bad debt). While Solana has improved stability, the perception of reliability is important – Ethereum, despite higher fees, has been very steady in uptime, which gives confidence for running protocols like MakerDAO. Solana’s relative newness and a few high-profile technical hiccups possibly dampened institutional or long-term user appetite to lock value in CDPs there.

• Alternate Solutions: Instead of CDPs, Solana users leveraged other ways to borrow against assets. Platforms like Solend allowed users to post SOL or BTC as collateral and borrow USDC directly (peer-to-pool lending). This fulfills a similar need – get liquidity without selling – but using existing stablecoins. Many users might have found this route simpler: rather than minting a new stablecoin (and worrying about its peg), just borrow USDC from a lending pool. Thus, traditional lending protocols on Solana cannibalized the use-case that a MakerDAO-like system would target. Why create PAI to use on a DEX when you can just borrow USDC and use it on that DEX? The success of Solend and others in facilitating collateralized loans reduced the impetus to use a CDP stablecoin.

In summary, Solana’s CDP-based stablecoins did not take off due to a combination of market saturation by USDC/USDT, lack of early momentum and developer focus, and the absence of a clear competitive advantage over existing solutions. Solana’s DeFi grew around different primitives, and by the time CDP projects emerged, there was little space or need for them. Even though technically Solana can support CDPs (and had the speed to potentially do it well), the market adoption wasn’t there. As DLNews reported, “USDC and Tether’s USDT…account for almost 99% of the stablecoin market on Solana,” and previous attempts at crypto-backed alternatives have largely “failed to gain any traction.” (Solana projects set to challenge Circle and Tether dominance in $3 billion stablecoin market – DL News) Future Solana stablecoin initiatives (like the upcoming ones mentioned in 2024, e.g. MarginFi’s YBX which is a staked asset-backed “soft peg” coin (Solana projects set to challenge Circle and Tether dominance in $3 billion stablecoin market – DL News) (Solana projects set to challenge Circle and Tether dominance in $3 billion stablecoin market – DL News)) are trying new approaches, but they will have to overcome the entrenched dominance of centralized stablecoins and demonstrate a unique value to succeed where earlier CDPs did not.

Ethereum’s Dominance in CDPs and MakerDAO’s Role

Ethereum remains the undisputed leader for CDP-based stablecoins for several interrelated reasons. First and foremost, Ethereum was where the concept was pioneered – MakerDAO’s launch on Ethereum gave it a huge first-mover advantage. But beyond being first, Ethereum provided the ideal environment for CDPs to flourish:

• Smart Contract Maturity and Security: Ethereum’s smart contract platform (Solidity/EVM) had matured by the time CDPs gained popularity, with many security practices and audit firms focused on it. MakerDAO’s contracts underwent extensive audits and even formal verification of critical components (MCD Security Audit - Notion). Over the years, MakerDAO has engaged multiple independent security firms (e.g., Trail of Bits, PeckShield, Runtime Verification) to audit and stress-test its system (MakerDAO and the Future of Decentralized Stablecoins - Medium). This level of scrutiny, combined with Ethereum’s battle-tested infrastructure, gave users and other protocols confidence in DAI’s safety. In contrast, on newer chains, similar confidence is harder to achieve early on. Additionally, Ethereum’s network reliability (no unexpected halts, a huge distributed validator set post-merge) means CDP systems can count on predictable operations for liquidations and oracle updates. The robustness of Ethereum’s base layer has been instrumental – even during extreme events (e.g., March 2020’s crash), the Ethereum chain continued processing transactions, allowing Maker’s liquidation system to function (albeit under stress). This reliability and security track record make Ethereum a natural home for high-stakes DeFi protocols like CDPs.

• DeFi Composability and Network Effects: Ethereum’s DeFi ecosystem is incredibly interconnected. Protocols on Ethereum benefit from composability – the ability to easily integrate with one another. DAI, as an Ethereum-native stablecoin, became widely integrated across DeFi: “DAI is widely used in popular DeFi applications such as Compound and Aave for lending and borrowing, in decentralized exchanges like Uniswap for trading…” (MakerDAO Overview - Reflexivity Research). Because so many protocols support DAI, holding or minting DAI via a CDP unlocks countless uses (yield farming, liquidity providing, margin trading, etc.). This composability greatly reinforced Ethereum’s CDP dominance – once DAI was the most ubiquitous decentralized stablecoin, any competitor on another chain had to not only create the CDP mechanism but also build a whole ecosystem around their stablecoin. On Ethereum, MakerDAO could focus on the core (CDP stability) while other teams built exchanges, money markets, derivatives that utilized DAI. This rich tapestry of DeFi apps amplified MakerDAO’s reach. For example, users might open a CDP to mint DAI, then deposit that DAI into Compound to earn interest or into Uniswap pools – all on the same chain seamlessly. Ethereum’s large user base and developers ensure that any valuable asset (like DAI) gets integrated widely, creating a reinforcing cycle of adoption. Even new Ethereum layer-2s often include DAI from the start (via bridges), extending Ethereum’s CDP influence beyond the main chain.

• Community and Decentralization Ethos: Ethereum’s community has a strong bias towards decentralization and open finance. This made MakerDAO’s decentralized stablecoin particularly appealing on Ethereum. Whereas on other chains users might not mind using a centralized stablecoin, within Ethereum’s DeFi culture DAI filled a niche as “the decentralized dollar”. It provided an alternative to USDC/USDT that aligned with the ethos of censorship-resistance. This ideological alignment meant that Ethereum’s DeFi users and builders were willing to bootstrap and support DAI’s adoption even when it was small. Over time, Maker’s governance (via the MKR token) also proved effective at decentralizing control – thousands of MKR holders participate in governance votes determining fees and risk parameters. Ethereum’s infrastructure (MetaMask, etc.) made participating in such governance accessible, and the transparency of on-chain operations built trust. According to research, DAI’s “mature ecosystem and proven track record, along with one of the most dedicated and active governance forums in DeFi” is a key distinction (MakerDAO Overview). This governance robustness (only possible on a chain with Ethereum’s level of participation and transparency) allowed Maker to adapt and remain dominant. For example, when risks were identified, Maker governance could quickly raise collateral requirements or introduce new collateral types. This active management kept DAI stable and the protocol solvent, reinforcing user confidence.

• Adaptability and Innovation on Ethereum: Ethereum’s flexibility allowed MakerDAO to innovate over time – moving from single-collateral to multi-collateral, adding support for new assets like WBTC, even incorporating real-world assets as collateral in recent years. Ethereum’s rich set of oracle providers (e.g. Chainlink) and auxiliary services made it easier to extend Maker’s capabilities. Moreover, new CDP-based projects on Ethereum have also thrived alongside Maker, showing the depth of the market. For instance, Liquity launched on Ethereum in 2021, offering a CDP-like model with a stablecoin (LUSD) and an innovative 0% interest mechanism. Liquity garnered a few hundred million in TVL, indicating Ethereum can support multiple CDP platforms simultaneously. This is partly because Ethereum’s user base and liquidity are so large that niche differentiators (like Liquity’s fee structure) can attract a segment of users. It’s telling that even these newer protocols often integrate with or complement Maker/DAI rather than replace it – Ethereum’s DeFi tends to aggregate layers of functionality. Another Ethereum-native project, Reflexer’s RAI, introduced a non-USD-pegged stablecoin via CDPs, which, while small, gained recognition as a purely crypto-native, governance-minimized stable asset. The common thread is that Ethereum provides the playground and audience for such experiments, many of which wouldn’t find users elsewhere easily.

• Sheer Scale and Liquidity: At its height, Ethereum’s DeFi TVL was orders of magnitude above other chains. Even today, Ethereum (including its L2 rollups) holds the majority of DeFi value. MakerDAO itself still holds several billion in collateral and remains a top DeFi protocol by TVL (MakerDAO Overview). This scale means better liquidity for DAI (tight peg, deep markets) and more resilience. When users see billions of liquidity and years of history, they trust the system more, which further entrenches its dominance. Competing CDP projects on smaller chains often face a bootstrap problem – low liquidity leads to higher volatility and lower trust, which in turn discourages growth (as seen in Solana’s case). Ethereum’s CDP ecosystem doesn’t have that issue; it’s self-sustaining and deeply liquid.

In essence, Ethereum’s dominance in CDPs is a product of its head start, its supportive ecosystem, and a feedback loop of trust and integration. MakerDAO’s DAI became “the most ubiquitous” decentralized stablecoin on Ethereum, “playing a pioneering role in fueling the rapid adoption of decentralized finance.” (MakerDAO’s DAI and DeFi for Collateralized Loans | Gemini). This pioneering position is hard to dislodge. Ethereum offers an unmatched combination of security, composability, and user base for CDP platforms. Unless other chains develop a similarly rich DeFi environment and user demand for decentralized stables, Ethereum is likely to remain the primary home of CDPs. Even as multi-chain DeFi grows, Ethereum’s CDP protocols (like Maker) are expanding to those networks (through bridges or multichain deployments), effectively exporting Ethereum’s dominance. For example, DAI is now present on layer-2 networks and other chains via bridges, often preferred by users over attempting to mint a brand new CDP stablecoin locally.

Finally, MakerDAO’s ongoing evolution (such as its plans to rebrand and incorporate real-world assets heavily as collateral) shows it’s an adaptive leader. The protocol’s longevity and continuous improvements underscore why Ethereum leads: it’s not static; the community learns and enhances the system, maintaining a competitive edge. As one report noted, MakerDAO with its large TVL and history has “remained dominant and adaptive to this day” (MakerDAO Overview). Ethereum’s culture of open innovation ensures that CDP platforms on Ethereum will likely continue to set the standard that others aspire to.

Conclusion

Collateralized Debt Positions have proven to be a transformative innovation in decentralized finance, enabling the creation of decentralized stablecoins and new credit markets that fuel liquidity across the ecosystem. From our analysis, it’s clear that CDPs carry substantial relevance – they allow crypto holders to unlock liquidity without offloading their assets, and they produce stablecoin liquidity that has become the lifeblood of DeFi lending, trading, and yield strategies (Collateralized Debt Position (CDP) - Faisal Khan). Historically, CDPs jump-started DeFi’s growth (with MakerDAO’s DAI as the catalyst) and still anchor a significant portion of on-chain value today, even as the landscape has broadened (image) (image).

However, the success of CDP-based projects is highly dependent on the surrounding ecosystem. Ethereum provided the perfect soil for CDPs to take root – a large, engaged community that values decentralization, a multitude of complementary DeFi protocols to integrate with, and a reliable, secure platform. This allowed MakerDAO and others to flourish, making Ethereum the stronghold of CDPs and decentralized stablecoins. In contrast, other networks like Solana and Tron illustrated that simply porting the CDP concept is not enough; without sufficient demand, deep liquidity, and integration, a CDP stablecoin struggles to gain traction. Solana’s case shows that when centralized stablecoins already dominate and the user base prioritizes convenience, crypto-collateralized alternatives may remain niche (Solana projects set to challenge Circle and Tether dominance in $3 billion stablecoin market – DL News) (Solana projects set to challenge Circle and Tether dominance in $3 billion stablecoin market – DL News). Similarly, experiments on newer chains can fail due to technical mishaps or lack of user trust (e.g., Acala’s aUSD hack, BitUSD’s design flaw), reinforcing that stability, security, and user confidence are paramount in this arena (Comprehensive List of Failed Stablecoins - ChainSec) (Comprehensive List of Failed Stablecoins - ChainSec).

Looking ahead, CDPs in emerging ecosystems (like TON) hold promise but will require careful nurturing. TON demonstrates technical feasibility for CDPs, and its growing DeFi efforts indicate an appetite for homegrown stablecoins (Aqua & Delea Hit Record TVL as TON Stablecoin Projects Gain Traction - NFTgators). Yet, as with other chains, building the necessary liquidity and trust will be the main challenge. TON’s path will likely depend on how well it can decentralize further and differentiate its DeFi economy to create a real need for a TON-native CDP stablecoin. In all cases, one consistent insight is that CDPs thrive when they become ingrained in their network’s financial fabric – that means broad adoption, integration into many dApps, and recognized value-add over existing alternatives.

In conclusion, CDPs have had a profound influence on DeFi’s evolution, underpinning the first major decentralized stablecoins and inspiring myriad lending models. They are both an economic tool (providing credit and liquidity) and a test of a network’s DeFi maturity. Ethereum’s continued dominance in this sector underscores the importance of a supportive ecosystem: technology alone isn’t enough – community, governance, and network effects ultimately decide the winners. As DeFi expands across chains, we may see CDPs take on new forms (leveraging cross-chain assets or real-world assets), but the core principles will remain. The story of CDPs is essentially about unlocking value in a trustless way, and wherever there’s demand for that and the right conditions, CDPs will likely find a market. Ethereum set the template, and others will continue to learn from its successes and failures as they attempt to replicate or adapt the CDP model in new contexts. The ongoing evolution of MakerDAO and similar projects will be crucial to watch, as they adapt to competitive pressures (like increasingly prevalent fiat-backed stables and newer algorithmic designs) and strive to maintain the delicate balance of decentralization and stability that defines the CDP paradigm.

Overall, the research indicates that CDPs remain a cornerstone of DeFi, but their impact varies greatly by ecosystem. When conditions align – as they did on Ethereum – CDPs can unlock tremendous value and drive innovation. When conditions are unfavorable, CDPs can falter despite the elegance of their design. Thus, stakeholders looking to implement CDPs on any platform must consider not just the technical build, but also the surrounding economic and community factors that are essential for success. The continued dominance of Ethereum’s CDPs and the mixed outcomes elsewhere offer a roadmap of both caution and inspiration for the future of collateralized debt positions in decentralized finance.

Sources:

1. Faisal Khan – “Collateralized Debt Position (CDP)” – Definition and usage of CDPs in DeFi (Collateralized Debt Position (CDP) - Faisal Khan) (Collateralized Debt Position (CDP) - Faisal Khan).

2. Gemini Cryptopedia – “MakerDAO’s DAI and DeFi for Collateralized Loans” – Noting MakerDAO’s widespread DeFi integration and pioneering role (MakerDAO’s DAI and DeFi for Collateralized Loans | Gemini).

3. Cointelegraph – “Stablecoin and memecoin frenzy drive Tron’s adoption” – Tron’s stablecoin usage dominated by USDT (~98%) (Stablecoin and memecoin frenzy drive Tron’s adoption: Report).

4. The Big Whale – “What is USDJ?” – Description of Tron’s USDJ CDP stablecoin mechanism on TRON (JustStable) (What is USDJ?).

5. ChainSec (The Block) – “Comprehensive List of Failed Stablecoins” – BitUSD’s loss of peg in 2018 on BitShares (Comprehensive List of Failed Stablecoins - ChainSec).

6. Cointelegraph – “Acala USD hack” – Incident of aUSD over-minting bug that crashed its value (Comprehensive List of Failed Stablecoins - ChainSec).

7. DLNews – “Solana projects challenge USDC dominance” – Solana’s stablecoin market 99% USDC/USDT; previous crypto-backed attempts failed to gain traction (Solana projects set to challenge Circle and Tether dominance in $3 billion stablecoin market – DL News) (Solana projects set to challenge Circle and Tether dominance in $3 billion stablecoin market – DL News).

8. DLNews – “Solana stablecoin projects (UXD, PAI, USDH) supply” – Combined circulating supply only ~$15M; commentary on Solana DeFi’s early stage and dev focus (Solana projects set to challenge Circle and Tether dominance in $3 billion stablecoin market – DL News) (Solana projects set to challenge Circle and Tether dominance in $3 billion stablecoin market – DL News).

9. DLNews – “UXD Protocol shuts down” – Reasons for failure: lack of liquidity and no advantage over centralized stablecoins (Solana protocol with $7.5m in deposits shuts down as its model ‘isn’t exciting enough’ for DeFi users – DL News).

10. NFTgators – “Aqua & Delea hit record TVL on TON” – TON’s CDP-based stablecoins reaching $9M TVL, showing initial traction (Aqua & Delea Hit Record TVL as TON Stablecoin Projects Gain Traction - NFTgators) (Aqua & Delea Hit Record TVL as TON Stablecoin Projects Gain Traction - NFTgators).

11. DefiLlama – “TON stablecoins and validators” – TON’s stablecoin market ~$918M (mostly USDT); TON active validators count (384 vs Ethereum 1.6M) (TON - DefiLlama) (The validator debate: how many are needed for true blockchain decentralization? | CryptoTvplus - The Leading Blockchain Media Firm).

12. Reflexivity Research – “MakerDAO Overview” – Maker’s status as a DeFi success (over $8B TVL, dominant since inception) (MakerDAO Overview); strong governance community (MakerDAO Overview).

13. Mirror.xyz (Caesar) – “Crypto-backed stablecoins are broken” – Limitations of crypto-backed stables vs fiat stables (capital inefficiency, etc.) (Crypto-backed stablecoins are broken — Caesar).