Author: Sage D. Young Source: unchainedcrypto Translation: Shan Ouba, Jinse Finance
The market capitalization of all stablecoins has grown 30% this year, from $130 billion to nearly $1.7 trillion, a more than two-year high, reflecting the public's growing enthusiasm for cryptocurrencies as it shows users are willing to store their money on-chain rather than in traditional bank accounts.
“Globally, digital assets are seeing increasing adoption as part of a larger trend toward financial digitization,” Paolo Ardoino, CEO of Tether, the largest stablecoin provider, said in an email to Unchained. “This adoption is driven by a combination of the growing need for efficient cross-border transactions, the desire for financial inclusion, and the need for alternatives to the traditional banking system, especially in regions with unstable fiat currencies.”
Stablecoins are tokens that can be used on-chain and are designed to be pegged to a fiat currency to minimize volatility. The lack of volatility means they are often used for daily transactions. While each stablecoin is designed to maintain a peg to a specific fiat currency (such as the U.S. dollar), not all stablecoins maintain their pegs in the same way. Some stablecoins are backed by cash and cash equivalents, while other stablecoin mechanisms rely on crypto assets and short-term futures positions.
Since stablecoins are designed not to fluctuate wildly in price, their market capitalization is a good indicator of the size of the crypto ecosystem. Aurelie Barthere, lead research analyst at blockchain analytics firm Nansen, said market capitalization shows “how many people are actually happy to have money (or rather) the equivalent of money) on-chain rather than in a bank account.”
Here are the top six stablecoins by market cap that are driving the current 2024 cryptocurrency cycle:
1. USDT
Market cap: $118 billion
Start year: 2014
Nansen data shows that Tether has issued five different stablecoins, of which USDT, which tracks the US dollar, has the largest issuance volume, accounting for nearly 70% of the entire stablecoin market.
At the beginning of 2023, Tether's USDT share of the total stablecoin market capitalization rose from 48% to 70%, which Nansen's Barthere said was "a huge increase."
Tether maintains USDT’s peg to the U.S. dollar by holding fiat currencies. According to its June transparency report, Tether’s reserves are mainly composed of U.S. Treasury bills, money market funds, and overnight reverse repurchase agreements.
The fact that Tether has not yet been officially audited, despite having quarterly attestation reports detailing the reserve backing it holds, has drawn strong criticism. Last December, Standard & Poor’s first stablecoin stability assessment gave Tether a score of 4 for its ability to maintain its peg to a fiat currency, the second-worst score.
Data from DefiLlama shows that the Tron network holds just under 50% of the total USDT supply, followed by Ethereum at 39%. According to data from on-chain intelligence platform Artemis, although Ethereum lags behind Tron, the average USDT transaction size on Ethereum is much higher than that on Tron - $38,510 on Ethereum compared to $6,550 on Tron.
2. USDC
Market value: $33.8 billion
Start year: 2018
Circle’s flagship product’s market value reached an all-time high of $55.6 billion in July 2022, but had shrunk by more than half by December 2023.
The decline in USDC’s market value stems primarily from the impact of USDC’s decoupling in March 2023, when two federally insured members of the Federal Reserve System, Silicon Valley Bank and Silvergate Bank, collapsed. Circle previously held a significant portion of its USDC reserves in cash at these banks.
Circle’s importance in the stablecoin ecosystem is also related to the company’s relationship with Coinbase, the largest cryptocurrency exchange in the U.S. The underlying technology for USDC was jointly developed by Coinbase and Circle. The exchange also acquired an equity stake in Circle.
Coinbase is the largest USDC holder on Base, the Layer 2 network incubated by the exchange. Nansen's data shows that 20 of the top 21 USDC holders on Base belong to Coinbase, each holding $101 million worth of USDC. According to Coinbase's latest quarterly report, in the first half of 2024 ending June 30, Coinbase earned about $437.8 million in revenue from stablecoins, accounting for more than 14% of the company's total revenue of about $3 billion.
According to DefiLlama, two-thirds of USDC’s supply exists on Ethereum, while the average transaction size on Ethereum is $85,020, according to Artemis.
3. USDS (formerly known as DAI)
Market value: $5.3 billion
Start year: 2014
On Tuesday, DeFi heavyweight MakerDAO rebranded to “Sky” and announced new versions of its stablecoin DAI and governance token MKR, which have a combined market cap of more than $7.1 billion.
Sky is different from both Tether and Circle because the stablecoin issuer is governed through a decentralized autonomous organization and holders of the protocol governance token have a say in the direction of the platform. Neither Tether nor Circle has a governance token. USDS is the largest decentralized stablecoin to date.
The changes are part of the protocol’s “Endgame,” the codename for a major overhaul of stablecoin issuers set to begin in 2022. According to the governance forum post, Endgame’s implementation includes a renaming and revamp of the protocol’s ecosystem tokens, designed to allow a wider audience beyond early adopters to enjoy the benefits of DeFi.
DAI holders can convert their DAI into USDS, “the upgraded stablecoin for the Sky ecosystem.” DAI is backed by multiple cryptocurrencies including Ether (ETH) and Wrapped Bitcoin (WBTC).
One controversial factor in switching from DAI to USDS is that the protocol’s new stablecoin may have a freeze feature, which enables authorized parties to decide who can use, own, and interact with the token and who cannot. Both Circle and Tether’s stablecoins have a freeze feature.
According to a May governance post, while the freeze feature will not be implemented at launch, governance members can vote on whether to implement it in the future. The post states: “Future freeze features are generally expected to follow the rule of law in jurisdictions where Maker needs a high degree of certainty that the legal system will enforce recourse against RWA collateral.”
Currently, 90% of DAI exists in Ethereum smart contracts, with the average transaction size being approximately $1.69 million according to Artemis data, indicating that DAI is not being used by retail crypto users.
4. USDe
Market value: $2.9 billion
Start year: 2024
In less than a year, Ethena's synthetic dollar product has reached a market value of $2.9 billion. USDe is a new type of stablecoin that is pegged to the US dollar through the use of derivatives (i.e. short futures positions). Ethena's USDe maintains its peg to the US dollar by using staked ETH, SOL, and BTC as collateral, while using delta hedging strategies in the derivatives market to offset price fluctuations and ensure stability.
This means that for every dollar drop in ether, Ethena’s long positions lose $1, but short positions gain $1, keeping the dollar value of the collateral stable.
Ethena's initial explosive growth stemmed from cryptocurrency users competing for high returns, with returns reaching 37% at one point, driven by enthusiasm and the start of a bull market. The returns on USDE staked on Ethena come from rewards for staking ether and the funding rate that Ethena earns from traders opening short positions in derivatives.
Since then, Ethena’s growth has slowed significantly, with its market cap shrinking 20% from its peak of $3.6 billion in July as Ethena’s USDE staking yield has fallen to 4%.
Funding rates have been positive for most of this year, helping Ethena offer attractive yields. However, data from CoinGlass shows that funding rates were negative for several days in August, meaning Ethena had to pay fees to traders who long, reducing Ethena’s yields and attractiveness.
Currently, the average transaction size of USDE on Ethereum is $122,460, which is larger than Paypal's PYUSD, Circle's USDC and Tether's USDT, but not larger than MakerDAO's DAI.
5. FDUSD
Market value: $2.7 billion
Start year: 2023
The stablecoin from Hong Kong-based cryptocurrency custodian First Digital Group had a market cap of $1.8 billion at the start of the year but has since grown by nearly 50% to nearly $2.7 billion. FDUSD is backed by cash and cash equivalents, with assets held in accounts at regulated financial institutions in Asia.
FDUSD’s growth was aided by a promotion by Binance, which offered zero-fee trading for six FDUSD spot and margin trading pairs between December 2013 and April 2024.
While more than 97% of FDUSD is stored on Ethereum, the rest of the stablecoin is stored on Binance Smart Chain. Meanwhile, blockchain data collated by Etherscan shows that the top eight holders of the stablecoin all belong to Binance, and together they hold nearly 98% of the entire supply.
CoinGecko shows that the BTC/FDUSD trading pair on Binance had the highest trading volume in the past 24 hours at $1.9 billion, with MEXC and BTC/USDT on Binance being the second and third trading pairs respectively.
6. University of Pennsylvania
Market value: $1 billion
Start year: 2023
The market cap of PYUSD, the stablecoin of PayPal, the fintech giant that owns peer-to-peer payment platform Venmo, has more than quadrupled from about $234 million to $1 billion. PayPal first launched PYUSD on Ethereum in August 2023, and then on Solana in June 2024, and the growth of PYUSD began. In August of this year, the number of PYUSD on Solana exceeded the total number on Ethereum, and currently accounts for 64% of the total share of Ethereum.
According to a report released by CCData on Wednesday, Onchain data shows that more than 50% of PYUSD is used as collateral for lending protocols and acts as a quote pair on decentralized exchanges. An example is Kamino Finance, a Solana-based lending protocol, where users can deposit their PYUSD with an annual yield of 9.94%.
“Over 45% of the circulating $PYUSD supply is deployed to Kamimo,” Kamino said on X on Monday.
Artemis data shows that the average transaction size of PYUSD on Solana is $8,700, while the average transaction size on Ethereum is $71,120.
