The Rise of Stablecoins: From Zero to $10 Billion in Six Years

The development of various currencies in the cryptocurrency industry has been uneven, but the stablecoin industry, as part of the cryptocurrency ecosystem, has been gaining momentum. Tether, the leader among stablecoins, has more than doubled its supply since the beginning of this year from $4.1 billion to $9.2 billion, maintaining its high-speed growth since 2019. Overall, demand for stablecoins seems to have been exploding, with a total market capitalization now exceeding $10 billion. Considering that before Tether was launched in 2014, there were no stablecoins on the market, it is all the more amazing that an industry that has only existed for six short years has grown so rapidly. This article explains why stablecoins have become so popular and why this trend is likely to continue.

Stablecoin trading project Platypus will launch NFT minting activities on June 27: According to news on June 20, Avalanche ecological StableSwap project Platypus will start NFT priority sales at 23:00 on June 27, Beijing time. The sales price is 250 PTP Tokens, the public sale will start at 23:00 on June 28, Beijing time. The Dutch auction method will be adopted. The price range will be 500 to 200 PTP tokens. This sale will total 10,000 NFTs. [2022/6/20 4:39:40]

The Terra proposal seeks to increase the minting capacity of the UST stablecoin to $1.2 billion: Golden Finance News, Terra Research announced a proposal to increase the minting capacity of the UST stablecoin to $1.2 billion

proposal. Terra’s governance blog proposes increasing the BasePool from $50 million to $100 million SDR and reducing the Pool Recovery Block from 36 blocks to 18 blocks. This will increase UST minting capacity from $293 million to $1.2 billion. Terra’s governance blog also revealed that most of the current market fluctuations (UST’s unanchor and LUNA’s price drop) are not from Mint and Burn, but from speculative trading activities. [2022/5/11 3:07:40]

Source: coinmarketcap Date: September 29, 2020

Bitcoin exchange Hodl Hodl launches stablecoin loan product: Non-custodial Bitcoin exchange Hodl Hodl has launched a loan product. The exchange claims that this will be the “first true Bitcoin DeFi” product. Users can borrow USDT, USDC, PAX or DAI in a peer-to-peer manner without going through KYC procedures, and users' bitcoins can be used as collateral, with a term ranging from one day to one year. (Coindesk) [2020/10/22]

First, we would like to introduce a few statistics of the current stablecoin market. USD Coin ranks second with a market capitalization of USD 730 million; followed by Paxos Standard and Binance USD with market capitalizations of USD 250 million and USD 1.6 respectively. The fifth and sixth places are True USD with a market value of 140 million US dollars and Dai with a market value of 130 million US dollars, followed by HUSD with a market value of 120 million US dollars. Finally, there is SUSD with a market value of 10 million. Combined, these stablecoins have a combined market capitalization of $10.75 billion, or 4% of the cryptocurrency market.

Stablecoin Market Report: The average daily transaction volume in May exceeded $1.5 billion: Blocknative, a blockchain data platform, released a report on the global stablecoin market. The main points of the report are as follows: 1. The trading volume of stablecoins continues to grow. Total daily stablecoin transaction volume has exceeded $1 billion in each of the past four months. In May, the average daily transaction volume exceeded $1.5 billion; 2. Tether transitioned to the Ethereum blockchain. Specifically, in January 2019, 1% of USDT transaction volume occurred on the Ethereum blockchain. By May 2020, 88% of all USDT transaction volume and 77% of all USDT transaction value occurred on the Ethereum blockchain; 3. Transition from single-collateral Sai to multi-collateral Dai system. In 2019, Maker had an average monthly transaction volume of $775 million, almost all through SAI. [2020/6/5]

The chart below records the market value changes of all the currencies mentioned above, from which we can see the development trajectory of stablecoins. In March of this year, the stablecoin market ushered in an unprecedented surge. This growth trend has continued until now, and there is still no sign of slowing down.

Source: Messari Date: September 29, 2020

Interestingly, the timing of this sudden increase coincided with the start of the coronavirus that caused the global economic collapse. In fact, when the stablecoin market began to surge in March, the U.S. stock market began to plummet.

Therefore, the recent growth of the stablecoin industry is likely related to the economic downturn caused by the new crown virus. While we cannot be sure by what mechanism the global economic crisis has increased the use of stablecoins, there are several possible theories.

First, fiat currencies around the world are weakening, as evidenced by the continued devaluation of legal currencies in Lebanon and Venezuela that triggered currency collapses. In addition, banks in some regions are experiencing bankruptcies. People are trying to find a safe haven outside the two, so they turn their attention to stablecoins.

The second possibility is that investors are simply entering the cryptocurrency market at a faster rate, buying stablecoins in large quantities in exchange for Bitcoin at the right price at the right time. In May of this year, the issuance of Bitcoin was "halved" again. People expected that after this "halving", the price of Bitcoin would usher in another rebound before the end of the year, so the investment volume of cryptocurrency began to surge. But as mentioned above, the general growth of the cryptocurrency market may also be due to investors seeking a safe haven from the economic storm.

Back to stablecoins themselves, one of the important reasons for their frequent use is that stablecoins are easier to use than conventional digital currencies. For normal digital currencies, it takes a few days to deposit money on an exchange and another few days to withdraw it. This inconvenience makes it almost impossible for ordinary digital currencies to be used for professional transactions in practice.

The deposit and withdrawal of stablecoins on exchanges can be completed almost instantly, and sufficient liquidity and flexibility allow traders and investors to seize the opportunity to make the best transactions without any waiting.

More specifically, professional traders and retail investors have been holding stablecoins on exchanges. These stablecoins can be used to buy other cryptocurrencies at any time, regardless of the timing of the transaction chosen by the trader. This is much more convenient than using regular digital currency and waiting for a deposit.

Therefore, stablecoins are gradually replacing conventional digital currencies in the encrypted market. Due to the characteristics of stablecoins, they naturally increase the liquidity, flexibility and convenience of transactions. These advantages are very important for those engaged in a large number of cryptocurrency transactions, and may even bring about a change in profit and loss. So, as more and more cryptocurrency holders abandon normal digital currencies and shift all their assets to the stablecoin market, this unique digital asset is likely to continue to grow in the long-term.

Translation: Hu Yuxuan

Source: BitcoinNews

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