Get ready, the Stablecoin wars have begun.
Stablecoins have become one of the largest and fastest-growing segments of the crypto industry, with a total market capitalization of over $180 billion — a figure that has grown by 109% over the past year and 1748% over the past two years.
Above: supply growth of major stablecoins. Source: The Block
In this sector of the crypto economy, stablecoins have an addressable market size in the trillions of dollars, and as a form of "money," these assets benefit from the massive network effects that come with liquidity. Because of this, early Stablecoin winners can easily become entrenched incumbents.
This of course begs the question: who is winning this Stablecoin war? Which Stablecoins are growing the fastest? Which Stablecoins are the most liquid and adopted across various use cases on-chain?
Let's find out.
Before delving into some data to understand the current state of the Stablecoin wars, let's take a brief look at the 7 major Stablecoin/currency issuers so we can have a high-level view of how these Stablecoins work and some of the drivers behind their success. level of understanding.
For our purposes, we'll be talking about USDC, USDT, BUSD, UST, DAI, FRAX, FEI, and OHM (although OHM is not a Stablecoin, but rather an "unpegged currency").
While these 7 stablecoins are not necessarily the largest by market capitalization, they are (for reasons explained below) in the best position to maintain or grow their market share and are one of the most competitive verticals in the DeFi industry.
USDC, USDT, and BUSD are currently the three largest centralized stablecoins. All three are issued by off-chain entities and claim to be backed 1:1 by fiat collateral (i.e. “real” USD).
While this Stablecoin design is more opaque and fully centralized, it has proven to be the most scalable of the Stablecoins as the three Stablecoins have a combined circulating supply of $144.2 billion, accounting for 100% of the entire industry. 80%. Although these three Stablecoins cannot be audited on the chain, they have issued their own proof of reserves to varying degrees. For example, Circle, the USDC issuer, and Tether, the USDT issuer, hold low-risk, short-term assets (such as commercial paper) in order to Generate income for yourself.
In particular, the deep liquidity of USDT and USDC enables these two Stablecoins to establish a huge network effect, and USDC is the most widely adopted Stablecoin on the chain (more on this later).
1) UST
UST is a decentralized algorithmic stablecoin pegged to the US dollar.
UST adopts a simple minting and burning mechanism to maintain stability: to mint UST, users must destroy LUNA (the native asset of the Terra blockchain) of the same value; similarly, users can redeem their UST by burning UST of the same value LUNA.
As we can see, UST is not backed by any external collateral — instead, it relies on arbitrage to maintain its stability: when UST is trading above its peg rate (i.e. $1), market participants have an incentive to Expand its supply and lower its price by minting new UST, and vice versa.
However, Terra recently raised a reserve fund of BTC and Avalanche’s native token AVAX (total value ~$1.75 billion) via the Luna Foundation Guard (LFG) to help support the UST peg, giving the stablecoin 9.3% access to these reserves Gold support.
Although this design has its own set of significant risks, it has allowed UST to rapidly expand its circulating supply to over $18.65 billion, ranking third among all Stablecoins, and its supply is already more than that of its closest competitor, DAI. twice as much.
2) DAI
DAI is a decentralized, dollar-pegged stablecoin issued by Maker DAO. DAI is based on the over-collateralization mechanism, and users can deposit different forms of collateral (such as ETH) into the vault to mint DAI Stablecoin. Users must keep their collateral positions over-collateralized because collateral can be liquidated when it falls below a set collateralization rate (collateralization rate varies by collateral asset).
DAI is one of the oldest and most proven stablecoins in the DeFi space, while Maker is known for its strong, decentralized governance system and best-in-class risk management policies. This, along with the widespread integration of numerous DeFi protocols, has grown DAI's market cap to over $8.13 billion, the fifth-highest market cap of all Stablecoins and the second-highest among decentralized Stablecoins.
3) FRAX
FRAX is a decentralized, USD-pegged stablecoin. As the name implies, the Stablecoin is a partial mortgage algorithm Stablecoin, and the amount of collateral in the system (collateralization rate (CR)) is dynamically changed, and is set by the market according to the supply and demand of FRAX. Similar to UST, a portion of the FRAX Stablecoin supply is unsecured and maintained through FXS Token (the protocol’s seigniorage and governance token), which is destroyed when new FRAX is created and minted to meet redemption demand .
Frax also uses what it calls an "algorithmic market maker" (AMO) to set monetary policy. These AMOs allow protocols to deploy FRAX and its reserves into various DeFi protocols such as Curve, Uniswap, and Aave to generate yield and help achieve strategic goals.
FRAX's "best of both worlds" design, coupled with the use of AMO and many partners, has expanded the supply of the Stablecoin to more than $2.6 billion. Ranked second among stablecoins.
4) FEI
FEI is also a decentralized stablecoin pegged to the U.S. dollar and issued by Fei Protocol. The Stablecoin is fully collateralized, and users can mint new FEI by storing various assets, which can be redeemed 1:1 at any time.
FEI only accepts decentralized collateral, and ETH and LUSD are the vast majority of its backing assets.
FEI has helped popularize the concept of "Protocol Controlled Value" (PCV), as its reserves are managed by TRIBE Token holders through decentralized governance (and will be managed through a managed Balancer pool in the future). This PCV is deployed in various DeFi protocols to earn yields, and the protocols themselves can use excess reserves to mint FEI (Protocol Owned FEI (POF)) to provide liquidity to the DeFi venues of their choice.
Although FEI is “only” the 11th largest stablecoin with a market cap of $566 million, the protocol has $878 million in combined PCV and POF. This, combined with the synergy of their merger with Rari Capital (the team behind permissionless money market protocol Fuse) to form Tribe DAO, should give Fei the resources they need to grow their market share.
5) OHM
OHM is a fully collateralized, free-floating currency issued by Olympus DAO. This means that OHM is not a stablecoin, but allows its price to be determined by the open market.
Olympus uses the bond mechanism and pledge mechanism to accumulate assets for its treasury and issue OHM. As far as the bond mechanism is concerned, the agreement sells discounted OHM (granted within a few days) in exchange for various assets, such as Stablecoin or LP Token paired with OHM. As far as the pledge mechanism is concerned, OHM holders can pledge their Tokens to obtain newly issued OHM, which helps to minimize the dilution brought about by the bond mechanism.
These mechanisms have had a significant impact on its price, while the model pioneered by Olympus has allowed the protocol to have 99.2% OHM liquidity and has allowed it to amass over $337 million in treasury funds. Like Fei and FRAX, holders of OHM can control these reserves for deployment in different venues to generate income or further strategic goals.
The funding will allow Olympus to continue to play a significant role in the stablecoin space and, in the long run, help propel its market capitalization past the current $368 million mark.
The chart below shows the market capitalization, market share, and market capitalization growth rate of the seven largest stablecoins in the past 3 months and the past 6 months:
As shown in the table above, UST and FRAX have been the fastest growing over the past six months, increasing their supply by 547% and 300%, respectively, over the past two quarters. Over the past three months, UST has continued to expand at the fastest rate, with a 65% increase in market capitalization. This increases UST's market share of the total Stablecoin supply from 2.08% in November 2021 to 10.34%, nearly five times.
Additionally, the above-average growth rates of UST and FRAX relative to the overall Stablecoin market are another example of the potential for a Stablecoin with an algorithmic component to scale due to more effective capital efficiency. These two stablecoins will likely continue to see massive growth through partnerships with each other (such as with 4pool on Curve). 4pool is a stablecoin pool composed of UST, Frax, USDC and USDT created by Frax and Terra on Curve, aiming to become the basic trading pair on Curve.
Stablecoin market capitalization growth rate leaderboard
Gold Medal: UST
Silver Medal: FRAX
Bronze Medal: USDC
Now that we’ve covered the major players in this Stablecoin war, let’s take a look at them on the front lines of the competition and see where they each stand.
To do this, we will compare the 8 aforementioned assets (USDC, USDT, BUSD, UST, DAI, FRAX, FEI, and OHM) as well as MIM and LUSD (the 6th and 12th largest stablecoins by market cap respectively).
To assess the adoption and usage of each Stablecoin, we will examine the composition of liquidity and deposits on DEXs (decentralized exchanges), money markets, and cross-chain bridges. Additionally, we'll look at Stablecoin holdings on DAO balance sheets and look at which Stablecoins are being used as a backing for other Stablecoins to assess their desirability and adoption as a reserve asset.
DEX (Decentralized Exchange) is the core of DeFi, facilitating asset exchange and liquidity flow throughout the DeFi ecosystem. As the insane popularity of the Curve Wars demonstrates, DEXs are a key battleground for Stablecoins, as their deep liquidity helps strengthen Stablecoin’s peg and solidify Stablecoin’s status as a popular trading pair for other assets.
Let's take a look at the composition of stablecoin liquidity on the top five DEXs (ie Curve, Uniswap, Balancer, SushiSwap and Bancor) with the highest TVL (Total Value Locked) on Ethereum, and look at the competition among these 10 stablecoins pattern.
Based on the above table, we can see that USDC has the strongest liquidity, at $2.32 billion, accounting for 23.3% of the total liquidity of these five DEX Stablecoins of $10 billion, followed by FRAX (19.6%) and DAI (18.4%) ), which were US$1.96 billion and US$1.83 billion respectively.
Going deep into the composition of Stablecoin liquidity on each trading platform, we can see that USDC is by far the most liquid Stablecoin on Uniswap and Balancer, accounting for 39.7% and 45.8% of all Stablecoins on these two DEXs respectively liquidity share. As shown in FIG.
Unsurprisingly, Curve has been the most competitive stablecoin battleground among DEXs, with no stablecoin protocol accounting for more than a quarter of the exchange's stablecoin liquidity.
FRAX is the most liquid stablecoin on the Curve platform, although it may be somewhat surprising, there is a reason for this, because the FRAX protocol is the largest holder of CVX (CVX is the governance token of Convex Finance, and Convex controls most CRV Token, thus controlling the flow of CRV Token rewards on Curve), and paid tens of millions of dollars in bribes to CVX holders in order to direct further liquidity to the FRAX matching pool on Curve.
Stablecoin's on-chain liquidity leaderboard:
Gold: USDC
Silver Medal: FRAX
Bronze Medal: DAI
Like DEXs, DeFi money markets (such as Aave, Compound, etc.) are one of the most critical components of the on-chain financial system, and they help enable Crypto lending, price risk, and (sometimes) inhibit DeFi Degens (gambler trading or) an insatiable desire for leverage.
Let's take a look at deposits on Ethereum's four largest money markets, Aave, Compound, Fuse, and Euler, to get an idea of how much each Stablecoin is deposited in these money markets relative to other Stablecoins.
From the table above, we can see that USDC is the Stablecoin with the largest deposits in these four major currency markets, exceeding USD 4.82 billion, accounting for 50.7% of the total deposits of USD 9.51 billion in the four platforms. DAI and USDT rank second and third with $2.32 billion (24.4%) and $2.05 billion (21.6%) in deposits, respectively.
Fuse has proven to be the most competitive market for Stablecoins, as FEI, FRAX, and OHM have the largest share of Stablecoin deposits on the platform. Given the nature of the protocol, this isn't particularly surprising given the large number of independent and dedicated pools between Fei and Fuse, as well as the tight ties between the two since both projects are based on Tribe DAO's under the umbrella.
Stablecoin deposit volume leaderboard in the money market:
Gold: USDC
Silver Medal: DAI
Bronze Medal: USDT
Blockchain "bridges" are rapidly becoming one of the most important pieces of infrastructure in the multi-chain crypto-economy. While each "bridge" has its own unique risk profile and trust assumptions, with the rise of alternative L1 chains and L2 networks, "bridges" provide users with a fast and relatively straightforward way to move between networks Transferring assets, the popularity of "bridges" has exploded.
With that in mind, let's look at which Stablecoins are the most liquid and/or have the most deposits on five popular "bridge" protocols (Synapse, Wormhole, Stargate, Multichain, and Hop) so we can understand Which Stablecoins are the most liquid and used in these multi-chain economies.
Data source: DeepDAO
Based on the above table, it is somewhat surprising that MIM is the most popular stablecoin among the five "bridges", followed by UST and USDC with $1.07 billion, $1.04 billion and $1.03 billion respectively liquidity/locked value.
Data source: DeepDAO
However, a closer look reveals that these numbers are somewhat distorted, as both MIM and UST are supported by only one of these five "bridges": MIN is only supported by Multichain, and UST is only supported by Wormhole. Additionally, we can see that while USDC ranks third overall in terms of liquidity/value locked, it has the largest market share on Stargate, Synapse, and Hop, and second on Wormhole and Multichain.
The leaderboard of Stablecoin in multiple chains:
Gold Medal: MIM
Silver Medal: UST
Bronze Medal: USDC
Another important use case for measuring Stablecoin adoption is its use as a vault asset. While many protocols have the majority of their balance sheets in their native governance tokens, DAOs (Decentralized Autonomous Organizations) are increasingly diversifying their treasury holdings into less volatile assets.
Let’s see how these 10 Stablecoins perform in this regard by looking at the holdings of the Stablecoins in the DAO vaults.
From the table above we can see that USDC accounts for 49.5% of the total value of stablecoin holdings of these tracked DAOs, or $477.5 million in USDC stablecoins on their balance sheets. USDC is also the stablecoin held by the largest number of DAO organizations, as many as 92 DAOs hold USDC assets in their vaults. DAI and USDT came in second and third with a share of 22.7% and 16.7%, respectively.
Among assets other than USDC, DAI or USDT, OHM dominates with a combined value of $47.5 million on the balance sheets of the three DAOs, while FEI is held by seven DAOs.
Top Stablecoin Holdings in DAO Vaults:
Gold: USDC
Silver Medal: DAI
Bronze Medal: USDT
The final key function of a Stablecoin is as a reserve for other currencies. As Stablecoins are tested more and more widely used as reserve currencies against their competitors, their lack of volatility increases the ease of risk management while also helping to align incentives to encourage stablecoin issuers to cooperation between.
With that in mind, let's take a look at the 10 we listed above by looking at the reserves and collateral of the 8 decentralized stablecoins (DAI, FRAX, FEI, OHM, alUSD, MAI, agEUR, and UST) Stablecoins in this regard to see how popular each Stablecoin is as a reserve for other Stablecoins.
From the table above we can see that USDC is the most popular reserve among other Stablecoins, accounting for 83.7% of the total Stablecoins held as reserves. It is followed by DAI, UST and LUSD with 8.1%, 5.7% and 1.4% respectively.
Reserve leaderboard:
Gold: USDC
Silver Medal: DAI
Bronze Medal: UST
Current winner: USDC
USDC is the most liquid Stablecoin on DEX, the Stablecoin with the highest deposit volume in the DeFi money market, the third most liquid Stablecoin on the cross-chain "bridge", the most widely used Stablecoin in DAO vaults, and the most widely used Stablecoin among other Stablecoins The most popular Stablecoin in reserves. It is clear that USDC is the most used on-chain Stablecoin in the Crypto space despite being the second largest Stablecoin.
While other smaller Stablecoin players have been able to gain market share in individual battlegrounds (e.g. FRAX is the most liquid Stablecoin on the Curve platform, FEI is the most deposited Stablecoin on the Fuse money market, UST is the only Stablecoin supported by the Wormhole cross-chain bridge) Stablecoin, but USDC is currently the clear "winner" of the Stablecoin war.
However, there is hope for those who support a decentralized stablecoin. Two decentralized alternatives, UST and FRAX, are currently growing much faster than USDC despite their smaller market caps.
Not to mention the arrival of other new challengers such as algorithmic Stablecoins on L1 chains like Near’s USN and Tron’s USDD, as well as CPI (Consumer Price Index) pegged Stablecoins like Frax’s FPI and Volt Protocol’s Volt , they could shake up the stablecoin competitive landscape.
While USDC may have an early lead, we've only just begun a long stablecoin war.
**This article only represents the views of the original author and does not constitute any investment opinion or suggestion.
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