As the liquidity core of the crypto market, stablecoins are becoming increasingly important in the global financial system. By reducing market volatility, stablecoins bridge traditional finance and crypto finance, promote the application of global payments, cross-border transfers and decentralized finance (DeFi), improve market liquidity, and accelerate the development of the digital economy.
What are stablecoins?
Stablecoins are cryptocurrencies designed to maintain relatively stable prices. Unlike volatile crypto assets such as Bitcoin and Ethereum, the value of stablecoins is usually pegged to fiat currencies (such as the US dollar), a basket of currencies, commodities or other assets to ensure that their value is not affected by drastic market fluctuations.
As part of financial innovation, stablecoins can help users cope with price fluctuations in the cryptocurrency market, while also having the characteristics of cryptocurrencies, such as fast settlement, global transactions, and transparency. This makes stablecoins a more stable and efficient solution for users in application scenarios such as payment, lending, and value storage.
Stablecoins are divided into the following 4 categories:
1. Fiat-backed stablecoins
This type of stablecoin is usually issued by a centralized institution, and its value is pegged to the fiat currency and is reserved at a 1:1 ratio. For example, to issue a stablecoin, the issuer needs to deposit an equal amount of legal tender as a reserve to ensure the stability of the currency value. Common examples include Tether (USDT) and USD Coin (USDC).
2. Stablecoins backed by crypto assets
Backed by other crypto assets (such as Bitcoin or Ethereum), these stablecoins usually use an over-collateralization model to maintain the stability of their value due to the large price fluctuations of the underlying assets. Dai (DAI) issued by MakerDAO is a representative of this type of stablecoin, which is decentralized through on-chain smart contracts.
3. Algorithmic stablecoins
Independent of legal tender or crypto asset collateral, these stablecoins use algorithms to adjust market supply and demand and maintain price stability. Smart contracts automatically control supply, such as Frax (FRAX) and TerraUSD (USTC) were once representatives of this type of stablecoins.
4. Commodity-backed stablecoins
Backed by physical commodities (such as gold and oil), the value of stablecoins is linked to the market price of these commodities. Paxos Gold (PAXG) and Tether Gold (XAUT) are typical gold-backed stablecoins.
Current status and trends of stablecoins
In 2014, the birth of Tether (USDT) ushered in the era of stablecoins. According to data from DefiLlama, the total market value of stablecoins peaked in May 2022, reaching $187 billion. Although it has fallen back since then, the current total market value is still close to $170 billion, showing its lasting influence in the cryptocurrency market.
1) USDT is dominant
Of the total market value of $172 billion, USDT accounts for $119.6 billion, accounting for 69.53%. Tether (USDT) continues to dominate the market with an overwhelming advantage. It is followed by USDC, with a market value of $35.9 billion, accounting for 20.05%. In addition, DAI, USDe and FDUSD rank in the top five with market values of $5.1 billion, $2.8 billion and $2.4 billion, respectively.
2) Ethereum stablecoins dominate, followed by Tron
Among all blockchains, Ethereum stablecoins have a market value of $82.9 billion, accounting for 48.96%. In addition, Tron ranks second with a market share of 35.11%, and its on-chain stablecoin market value is $59.6 billion. BSC, Arbitrum and Solana rank in the top five with on-chain stablecoin market values of $4.9 billion, $4.5 billion and $3.9 billion, respectively.
A quick look at the top ten stablecoin projects
1. Tether (USDT)
USDT is currently the leader in the stablecoin market, with a total market value of approximately $119.6 billion. Issued by Tether Limited, USDT’s issuance mechanism is based on the company’s claimed 1:1 fiat currency support, that is, each USDT is backed by an equivalent amount of fiat currency reserves.
To ensure the transparency of its reserves, Tether has published the reserves of multiple currencies on its official website, including the U.S. dollar (USDT), the euro (EUR), the offshore renminbi (CNH), gold (XAU) and the Mexican peso (MXN), to ensure open and transparent auditing and data disclosure.
Public data shows that USDT is currently circulating on dozens of blockchains. Among them, Tron network and Ethereum are far ahead with 49.5% and 39.28% respectively, and the remaining share is mainly divided by public chains such as BNBChain (3.37%), Arbitrum (2.37%), Avalanche (1.16%), and Optimism (0.97%).
2. USDC
USDC is jointly issued by Circle and Coinbase. It is a fully regulated dollar-pegged stablecoin with a current market value of approximately US$34 billion. Affected by the sanctions of the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) and the U.S. Securities and Exchange Commission (SEC) in the third quarter of 2022, USDC’s market value has decreased by about 38% from a peak of $55 billion.
USDC is regularly audited independently to ensure its transparency and the security of its reserves. Because of its transparency, USDC is popular among institutional traders and is widely used in decentralized finance (DeFi), payments, and cross-border transactions.
3. DAI
DAI is a decentralized stablecoin launched by MakerDAO in 2017, anchored to the U.S. dollar. DAI’s price stability is maintained by over-collateralizing crypto assets such as ETH and WBTC. Users manage collateral through collateralized debt positions (CDPs) and use smart contracts to automatically run the entire process.
The current market value of DAI is about $5.1 billion. The stablecoin is mainly circulated on Ethereum, with an adoption rate of 91.06%, followed by Polygon and Arbitrum. On August 27, the Maker protocol announced that it would be renamed Sky, and DAI was also renamed USDS, but the exchange ratio of 1:1 was maintained.
4. USDe
USDe is a decentralized stablecoin launched by Ethena, based on Ethereum. USDe maintains price stability through derivative collateral and Delta neutral hedging strategies. Users can use USD, ETH or liquid pledge tokens as collateral to generate USDe. Since its launch, USDe’s market value has reached US$3.6 billion and is currently about US$2.8 billion.
5. FDUSD
FDUSD is a stablecoin issued by FD121 Limited in 2023, fully backed by US dollars or equivalent assets 1:1. The stablecoin is mainly issued on Ethereum, accounting for nearly 98%, and its reserves are stored in regulated financial institutions in Hong Kong to ensure transparency and security.
6. PYUSD
PayPal launched the stablecoin PYUSD pegged to the US dollar, aiming to simplify digital payments and transactions worldwide. PYUSD mainly runs on the Solana and Ethereum blockchains, and its current market value is about US$1 billion. Since June, thanks to the high adoption rate of the Solana network, the supply of PYUSD has increased significantly, up about 260%.
As the market value rises, the trading volume of PYUSD has also increased significantly. According to Allium Labs, PYUSD’s trading volume reached $8.88 billion in August, an increase of 26.75 times compared with $320 million at the beginning of the year.
7. USDD
USDD is a stablecoin launched based on the TRON public chain and was issued by the TRON DAO Reserve in May 2022. USDD maintains price stability by over-collateralizing crypto assets in the Tron ecosystem. Its market value is currently $752 million, mainly issued on Tron, Ethereum, BNBChain and Bittorrent networks, of which Tron accounts for 99.5%. According to official website data, the total collateral asset value of USDD is $1.752 billion, including approximately 10.929 billion TRX and 25.6 million USDT.
8. BUIDL
BlackRock and Securitize have partnered to launch BUIDL, a tokenized asset fund designed for institutional investors. BUIDL is issued on Ethereum as an ERC20 token, supports real-time transfers on the chain, and allows interaction with smart contracts.
Investors need to meet certain eligibility criteria to receive an equivalent value of BUIDL tokens, each of which is fixed at $1. The fund invests in cash, U.S. Treasury bills, and repurchase agreements. BUIDL has a market value of approximately $500 million, and its holders include institutions such as Ondo Finance.
9. TUSD
TUSD is a stablecoin pegged to the U.S. dollar. It was issued by TrueCoin in 2018 and transferred to Techteryx in 2020. TUSD is mainly issued on the Ethereum and Tron networks, accounting for about 99%. Although TUSD’s market value once reached $3.78 billion in October 2023, it has rapidly declined due to the liquidity and trust crisis caused by the depegging, and currently only about $489 million remains.
10. FRAX
FRAX is an innovative stablecoin launched by Frax Finance in 2020, partly collateralized by crypto assets and partly controlled by algorithms. It maintains the price of $1 stable by regulating the supply and demand of the market. With the launch of Frax V3, FRAX has turned to multiple asset collateral, including frxETH and FXB, making its collateral more diversified. FRAX is mainly issued on the Ethereum network, accounting for 66.51%, and its current market value is $370 million, which is down from its peak.
Summary
The stablecoin market has developed rapidly in the past decade and has become an important bridge connecting traditional finance and blockchain. It not only brings convenience to payments and cross-border transactions, but also provides support for the expansion of the decentralized economy.
With the participation of institutions and the promotion of technological innovation, stablecoins will play a greater role in the global financial system. In the future, improvements in security, transparency, compliance and cross-chain interoperability will be the key to its further development.
About Starcoin
Starcoin provides the utmost security from the origin via its enhanced PoW consensus and Secure smart contract, using the language of Move. Through layered and flexible interoperability, it optimizes the building of ecosystems such as DeFi, NFTs, Gaming, etc., with higher efficiency and convenience. This process redefines value by empowering every participant in the ecosystem to enjoy the multiplication of values.
Follow Starcoin on social media to stay up to date with all the latest developments.
