The crypto space has generally been mixed lately, but one sector of the crypto space, the stablecoin industry, has been absolutely proliferating. Tether, which is the king of stablecoins, has seen its circulating supply increase by well over 100% since the beginning of 2020, from USD 4.1 billion to USD 9.2 billion. Likewise, in 2019, Tether saw over 100% growth as well. Overall, the demand for these fiat-pegged tokens seems to be growing exponentially, and now the total market cap is well over USD 10 billion. This is particularly impressive considering that there was no stablecoin market cap at all until 2014 when Tether launched, so the sector has only been around six years. This article explains why they have become so popular, and why this trend is likely to continue.
First off, here are some stats on the current state of the stablecoin space. Tether is the leader by far with a market cap of USD 9.21 billion, with USD Coin being the second most popular of its type with a market cap of USD 0.73 billion. This is followed by Paxos Standard which has a market cap of USD 0.25 billion, Binance USD which has a market cap of USD 0.16 billion, True USD which has a market cap of USD 0.14 billion, Dai which has a market cap of USD 0.13 billion, HUSD which has a market cap of USD 0.12 billion, and sUSD which has a market cap of USD 0.01 billion.
Collectively, these stablecoins have a market cap of USD 10.75 billion, which is 4% of the total crypto market cap.
The evolution of stablecoins can be seen in this graph from Messari, where the market caps of all the coins mentioned above are tracked through time. It can be seen that their market cap began to skyrocket like never before in March of this year, and it has continued to surge since then without slowing down.
The timing of this surge coincides exactly with the beginning of the Coronavirus induced global economic crash. Indeed, the stock market in the United States began to crash in March at the same time the stablecoin surge started.
Therefore, it is quite possible that the recent surge in this sector is connected to the economic fallout of the Coronavirus in some way. There is no way to know the exact mechanism by which the global economic crisis has increased stablecoin usage, but here are some theories.
First off, fiat currencies around the world are weakening, with the local fiat currencies in Lebanon and Venezuela descending into a currency collapse. Also, in general, some banks around the world are going bankrupt. Perhaps stablecoin usage is increasing due to people seeking a safe haven from weakening fiat currencies and insolvent banks.
Another possibility is that investors are simply entering the crypto space at a faster rate, and they are buying up stablecoins in order to be ready to buy Bitcoin at an optimal price. This surge in crypto investment could be due to the May block halving since a major rally is expected by the end of the year due to the halving. Also, a general surge in crypto investment could be due to investors seeking a safe haven from the economic storm.
Zooming out, the fundamental reason that stablecoin use has proliferated is that they are easier to use than regular fiat. With regular fiat, it can take days to deposit funds onto an exchange, and days to withdraw funds. This is very inconvenient and makes it practically impossible to conduct professional trading.
On the other hand, stablecoins can be deposited and withdrawn from exchanges almost instantly, giving traders and investors the liquidity and agility they need to conduct optimal trades without any waiting.
More specifically, professional and retail traders alike are keeping stablecoins on exchanges, and these tokens are used to buy crypto at the exact time that the trader chooses, which is far more convenient than using regular fiat and waiting for a deposit.
Thus, stablecoins are taking the place of regular fiat currency in the crypto space, since they automatically increase liquidity, agility, and convenience when trading on exchanges, and the edge that these fiat-pegged tokens provide can make all the difference between losses and profits for people running serious crypto trading operations. Ultimately, it is likely that the stablecoin surge will continue long term, as more and more crypto users ditch regular fiat and put all of their fiat funds into these unique digital assets.
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