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Six Thoughts Following “Stablecoins Are Killing It ” Episode #3 on 5/14/20

The first half of Episode #3 featured our esteemed guests presenting their macro views on stablecoins. The 2nd half was Q&A. View the entire episode:

Or read my six highlights:

1. There Are Broadly Three Types Of Stablecoins

Sam stated that there are three types of stablecoins

  1. Crypto backed — where the stablecoin is minted when someone “locks” the crypto collateral
  2. Fiat backed — where the stablecoin is minted when someone “locks” fiat
  3. Algorithmic — where there is nothing backing the stablecoin, just like there is nothing backing the dollar

Sam highlighted that there are currently no algorithmic stablecoins because there is nothing giving users confidence in the coins at the beginning.

The highest profile attempted algorithmic stablecoin to date was Basis , which raised $133 million in April, 2018. But Basis shuttered, and returned unspent capital, just 8 months later, due to regulatory issues.

Sam’s venture, Frax, solves the confidence problem of algorithmic coins by starting as fully backed, and moving to algorithmic over time as confidence builds.

2. Stablecoin Growth Will Be Driven By The Fact That It’s A 10X, Better Experience For Moving Money. On-Ramps & Off-Ramps Are The Bottleneck

While trading has been the major factor in stablecoin growth before this year, Ryan made a compelling case that future growth will be driven by the fact that stablecoins are a 10X better experience for moving dollars vs. bank transfer due to two factors:

  1. Cost —most stablecoin transfers cost less than one dollar
  2. Settlement —being able to settle in minutes vs. days for corresponding banking systems is a massive advantage

Roy said that Wave Financial has started using USDC to fund investments instead of sending a wire outside the U.S..

The gating factor today are the the difficulty in accessing crypto on-ramps and off-ramps today. Roy stated he would send money home, to Israel, via stablecoin, except it’s too difficult to stablecoins off the crypto rails and on to the banking rails in Israel.

3. Higher Yields Can Drive Use Of Stablecoins, But The Risks Are Still Significant

Crypto companies like Blockfi are offering interest rates on cryptocurrency (Bitcoin, Ethereum, USDC…) that are dramatically higher than investors can get via traditional banks, but there are risks.

The most obvious risk is that the smart contract that is holding custody of DAI or USDT token, may not act as intended. While we’ve seen the rise of insurance companies like Nexus Mutual that investors can use to hedge the smart contract risk, there’s still counterparty risk that the insurance company can or will pay in the case of a loss.

Another risk one is personal security. These are all bearer assets, so holding your private keys has risks we’e all familiar with.

There is also risk that sharp drop offs in the value of the collateral backing the loans, as we experienced on Black Thursday (March 12, 2020), can leave the loans under collateralized.

As with any emerging financial markets, these risks are all being addressed (e.g. Digital Gamma is directly connecting lenders and borrowers, thus reducing the risk of intermediaries), but it’s still early days.

4. Since December 17th, 2017, Tether’s Trading Dominance Has Gone Up 5X, And Its Share of Crypto Tweets Has Gone Up 30X

Over the last 30 months, Tether’s share of crypto transactions has increased from 6% to 30%, as traders migrated to the stablecoin for it’s ease of use. During that time, overall percentage of cryptocurrency tweets about Tether has gone from .03% to a recent peak of 1%, a 30X increase.

Data From The TIE

Just this year, the average number of people tweeting about Tether has increased 50%

Data From The TIE

Joshua also highlighted that there is less bot traffic in stablecoins like Tether vs. other types of cryptocurrencies, because there is little to be gained by manipulating sentiment.

And Tether sentiment on Twitter hit its highest point in three years on April 18th.

Data From The TIE

Binance’s stablecoin (BUSD) has seen the largest increase in market cap dominance among stablecoins, all-be-it off a tiny base

Data From The TIE — logrithmic scale

5. The Number of News Stories Mentioning Stablecoins Is Poised To Hit An All Time High, With Non-Crypto Publications And China Being Major Drivers of Growth

The TIE tracks over 1,200 different news sources, and the numbers of news stories mentioning stablecoins is experiencing a sharp increase of late:

Data From The TIE

That increase is driven in part by the rise in the number of stories appearing outside of crypto publications. One notable sector writing about stablecoins are legal publications like JDSupra, Bloomberg Law and Law 360. Places that weren’t writing stories until recently.

The top four news sources for Tether are all Chinese, lead by Odaily:

Top Tether News Sources

Stories about central bank digital coins (CBDCs) are also seeing an increase, driven in part by Chinese publications like ChainNews, and Bitcoin86.

Top CBDC News Sources

China is driving 44% of all DeFi news stories and 71% of Tether news mentions.

Maker is also talked about in China, with ChainNews second to Maker’s own blog:

6. Our Panelists Predicted That Stablecoins Could Grow To 10X To $100+ Billion In Market Cap Over The Next 12 Months

All our panelists believe that stablecoins could 10X+ in the next year in terms of market cap.

Sam believes that stablecoins could be used in payment apps like Venmo in the next year. And they could do that without using ever using the word stablecoins.

Roy thinks the market cap of stablecoins will get a massive boost from Libra and China’s CBDC bringing dramatically better on-ramps & off-maps to crypto.

Register for “Stablecoins Are Killing It” — Episode #4, 5/21, 1pm-2pm EST

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Lou Kerner

Lou Kerner


Believe Crypto is the biggest thing to happen in the history of mankind. Focused on community (founded the CryptoOracle Collective &CryptoMondays)