Stablecoin Market
Trends and Evolution
Analyzing the stablecoin landscape from a market share, volume, and speculation perspective
The stablecoin sector has undergone significant transformation over the past year, influenced by regulatory shifts, crises, and emerging opportunities, each leaving its mark on the industry. USDT has undergone remarkable growth, while USDC has contracted following a regional banking crisis. DAI has taken center stage in on-chain volume recently, thanks to its innovative stablecoin strategy of depositing funds in short-term US treasury bonds, which are currently offering a high Annual Percentage Yield (APY). Lastly, we also examine how the recent upswing in cryptocurrency market prices is influencing the flow of stablecoins on exchanges.
The market capitalization of USDT has recently reached record highs, solidifying its status as the most widely adopted stablecoin in the cryptocurrency market.
Several major players in the stablecoin market have experienced various events over the past year. BUSD, formerly the third-largest stablecoin in the market, had to cease its operations due to legal issues with US authorities. Since that event, PAXOS, the operator of Binance’s BUSD, has been limited to only processing withdrawals from users, causing the market capitalization to gradually decrease as withdrawals are carried out. USDC also faced a significant setback when it came to light that $3.3 billion of its reserves, crucial for maintaining its $1 peg, were held in the struggling Silicon Valley Bank.
This sequence of events positioned USDT, which was already the largest stablecoin, to attract new users and expand its market share further.
USDT seized the market’s dominant position as the events within the stablecoin industry allowed Tether, the entity behind USDT, to grow and assume control of the market. With its current market capitalization standing at $84 billion and a stablecoin market share of 68%, this giant solidified its position as the primary provider of stablecoins in the market.
Despite Tether establishing itself as the leading stablecoin provider, there remains potential for further growth and innovation within the space. This trend is particularly noteworthy, as some stablecoin providers now offer crypto users the opportunity to generate yield. These stablecoins are subsequently utilized to purchase short-term US treasury bonds, which are presently offering the highest returns since 2007. This mechanism enables stablecoin holders and cryptocurrency users to access the US bond markets without directly engaging with them.
MakerDAO, the protocol behind DAI, played a pivotal role in spearheading this trend as a major innovator. With the relaunch of its DSR (Dai Savings Rate), MakerDAO enabled users to lock their DAI holdings within a smart contract, thereby earning a return on their assets. This new initiative of purchasing US bonds was fully introduced in August 2023 when DSR rates reached its highest, and since then, the on-chain volume of DAI has experienced a notable increase. It’s evident that power users are keen on securing returns on their investments, as transactions exceeding $100,000 make up more than 90% of DAI’s total volume. Over the past two weeks, starting from October 15th, DAI has consistently held the top position in terms of on-chain volume among stablecoins. This achievement is significant, especially considering it’s the third-largest stablecoin by market capitalization, marking a clear signal in the industry.
Lastly, the recent upswing in cryptocurrency asset prices has been clearly reflected in the stablecoin market as well.
The Exchange Flows indicator, which refers to assets being sent to and from exchanges, has shown a consistent inflow trend. Inflows are typically associated with users selling their assets on exchanges, which is the reason behind them transferring their assets to these exchange platforms. This suggests that users are currently using their previously held stablecoins to purchase cryptocurrency assets, which aligns with the recent surge in prices.
In conclusion, the stablecoin market has undergone significant changes over the past year, marked by regulatory challenges, crises, and innovative strategies. While some major players, like BUSD and USDC, faced setbacks, USDT emerged as the dominant stablecoin with a market cap of $84 billion and a 68% market share. However, there is still room for growth and innovation in the space, exemplified by the trend of earning yield on locked stablecoins through investments in short-term US treasury bonds. MakerDAO’s role in pioneering this initiative, particularly with the relaunch of its DSR, has been instrumental. The recent surge in cryptocurrency prices has also been noticeable on the stablecoins market specifically by users acquiring crypto assets, resulting in continuous inflows to exchanges.
