The Stablecoin Race Heats Up
USDT reaches new highs while USDC and DeFi catch up
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This week we cover the latest on the stablecoin space and its effects on the broader crypto space. We analyze Tether’s remarkable position, USDC struggles post-SVB and recovery attempts, and the upgrades decentralized stablecoins are making to gain market share.
Network Fees — Sum of total fees spent to use a particular blockchain. This tracks the willingness to spend and demand to use Bitcoin or Ether
- Bitcoin fees rebounded by 37% as weekly transaction numbers are on track to reach their highest since May
- Ethereum fees climbed by 9% with Uniswap volumes increasing for new assets like UNIBOT and “X-related” tokens following the Twitter rebrand
Exchanges Netflows — The net amount of inflows minus outflows of a specific crypto-asset going in/out of centralized exchanges
- Bitcoin recorded $230M of outflows from CEXs, while Ethereum saw only $15M in inflows
The Stablecoin Race Heats Up
Stablecoins have benefitted significantly from the bear market. As interest rates have increased from 0% to 5.5%, revenues for centralized stablecoins have been growing quickly.
In particular, Tether stands out, accumulating almost $1.5B in net profit in the first quarter of 2023. These profits are on track to be even larger in Q2 and Q3 as the amount of Tether issued continues to grow.
All-Time High for USDT — Tether supply (and market cap) reached a record high this month, as it approaches $84B
- USDT is one of the few crypto-assets currently at all-time highs
- Being highly profitable, Tether announced it would be using 15% of its profits to buy Bitcoin which should help support the market
- Circulating supply of USDT is up nearly 30% year-to-date, accelerating after the Silicon Valley Bank collapse, which led to uncertainty for USDC
USDC Troubles — USDC volumes and supply have plummeted since March
- USDC on-chain volumes hit a two year low a month after the SVB collapse, and are down 50% from the week prior to it
- Circulating supply is down 37% since March and continues to trend lower
- Despite this, Coinbase is doubling down on USDC, with Brian Armstrong pointing to instant and free payments as the next step for crypto adoption
Meanwhile, DeFi stablecoins are making moves to catch up with centralized counterparts.
Increasing Competition — decentralized stablecoins are looking to differentiate to attract more capital
- MakerDAO founder Rune Christensen is proposing to introduce an enhanced DAI Savings Rate (DSR) that would yield as high as 8% APY
- Instead of offering high yields to depositors, Aave has opted to provide low borrowing costs
- There is also a proposal to add support to the DSR on Aave, which would significantly boost demand to borrow GHO
- New entrants such as Lybra and Raft also offer low cost (or even free) stablecoin borrowing options by instead taking a cut of staking yields from collateral assets
Overall, while USDT continues to reap massive returns from its liquidity moat and first mover advantage, USDC aims to reduce friction for global usage and DeFi stablecoins make strides to become more competitive. With stablecoins being one of the largest opportunities within crypto, it is evident that the race for adoption is heating up.
