Stablecoin Landscape in 2020. Stablecoins have become a vital component of the global crypto landscape. As per Santiment, the total market cap of stablecoins stands at a little over $20 billion. That’s a 170% jump over the last six months. Consider the following numbers:
- The supply of USDC, the Circle-backed stablecoin, has grown by 250% since the start of 2020. USDC’s market cap has gone up from $520 million at the beginning of the year to $2.7 billion, as of writing. Currently, it is the 13th largest coin by market cap.
- Other USD-backed stablecoins have also experienced explosive growth. DAI and Binance USD have both exploded by 970% and 800%, respectively, in 2020.
- Tether (USDT) still remains the undisputed king of stablecoins. With a market cap of nearly $15.75 billion, the stablecoin leader sits comfortably as the third-largest coins in the world (by market cap).
Reasons for growth
So, what’s the main reason behind this explosive growth of stablecoins?
- Low volatility: One of the most significant issues that have prevented cryptocurrencies from achieving true scalability has been its extreme volatility. Stablecoin’s price stability removes this volatility factor altogether.
- Blockchain-based: Despite the price stability, the stablecoins are still based on blockchain technology. In essence, it allows you to enjoy the benefits of both the fiat and crypto worlds.
- DApps: Developers can easily incorporate stablecoins in their dApp ecosystem to encourage in-app purchases and build a healthy internal economy.
- Faster remittance: Stablecoins allows for faster, cheaper, and more secure cross-border payments and remittances.
The effect of the DeFi boom on stablecoins
Stablecoins have experienced rising adoption and interest during the DeFi boom. Especially with the rise in popularity of DeFi yield farming, stablecoins have gotten a significant utility boost. Farmers have tended to prefer stablecoins because, even with higher interest rates, the entire proposition has been extremely profitable. Since users can leverage the DeFi’s composability to link multiple dApps with each other, it greatly increases stablecoin activity.
Centralized vs Decentralized stablecoin performance
While centralized stablecoins like USDT and USDC are not necessarily ideal, they are pretty regulatory-friendly and easy for retail use. Since Ethereum is the main hub for DeFi activity, USDT and USDC have made their way into its blockchain and have quickly made their presence known.
USDT, in particular, has become one of the biggest generators of gas fees on the network.
This is a bad sign since it has essentially filtered out the possibility of small and microtransactions. After all, no one will conduct a small transaction if they have to pay an equal amount in gas fees, right? This is hugely detrimental for retail users. As shown in the chart below, the median transaction value with stablecoins has grown eventually over time.
Stablecoins DEX vs CEX
As per the chart above, most trading activity using stablecoins occurs in centralized exchanges (CEX). While Dai is a decentralized coin, it still trades mostly on centralized platforms.
Stablecoin utilities outside trading and DeFi
Along with the utilities that we talked about above, we shall look into two more interesting utilities of stablecoin.
Libra has been a hot topic since mid-2019. As you may know, Libra is the stablecoin that Facebook is currently working on and has been backed by a ‘bucket’ of securities and currencies. Libra allows users to make instant payments through a messaging app with little to no charges. Initially, major companies like Uber, Visa, MasterCard, and PayPal were looking to invest in the project. However, numerous regulatory hurdles later, they have all backed out and Libra is currently in a state of limbo.
#2 Central Bank Digital Currencies
Another excellent utility of stablecoins lies in Central Bank Digital Currencies (CBDCs). Central banks are actively looking into CBDC implementation to improve transparency, traceability and bring financial inclusion into their economy. Let’s look at some of the implementations of CBDCs:
- People’s Bank of China is actively working on Digital Yuan. Pilot tests are presently being carried out in Shenzhen, Suzhou, Xiongan, and Chengdu.
- US lawmakers have introduced a bill proposing a digital dollar. This will help send stimulus payments to the citizens.
- Bank of England has also published a discussion paper on CBDCs.
- The Christine Lagarde-led European Central Bank has been actively researching a digital euro. The ECB has recently published a comprehensive report on the potential impact of a CBDC.
Stablecoin Landscape – Conclusion
Stablecoins have become the most in-demand asset class in the crypto industry. The total market cap of this asset class is exceeded only by Bitcoin and Ethereum. So, how can you safely invest in this exponentially growing asset class?
VirgoX provides a one-stop stablecoin digital asset trading platform by driving global adoption and growing demands for integrated exchange services. Not only does it offer extensive stablecoin trading pairs, but it also incubates stablecoin projects from early stages. VirgoX offers spot & contracts trading, crypto lending, and multiple currency fiat onramp and offramp.
Along with all this, VirgoX is also working on an independent, not-for-profit organization called World Stablecoin Association (WSA). WSA’s main aim is to unite business leaders, enterprises, community builders, and regulators from all over the world to develop and promote stablecoins.