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5 months after the collapse of Terra’s UST, where is the stablecoin market? (Decryption)

by Ashutosh Thakur
October 20, 2022
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The crypto ecosystem shook as rarely this year. On the night of May 9 to 10, the former 3th largest stablecoin on the market has collapsed to be worth almost nothing. More than 30 billion dollars went up in smoke as a result of the UST, causing many personal tragedies. From memory of Cryptonautethe crypto galaxy had not experienced such an explosion since the Bitconnect scandal in 2018 or the bankruptcy of Mt. Gox in 2014. Today we therefore take a look at the main stablecoins on the market, to capture their respective dynamics .

Tether’s USDT still dominant ahead of USDC and DAI

The least that can be said is that there has been movement around the stablecoins. Let’s start with the most glaring change: the total capitalization of stablecoins has dropped to $135 billioncompared to almost 200 billion before the TerraLuna disaster.

We can clearly distinguish that most of this shift took place in May, with a sudden discontinuity in the supply of the biggest stablecoins:

5 Months After The Collapse Of Terra'S Ust, Where Is The Stablecoin Market?  (Decryption)

So we’ve seen the capitalizations of USDT (Tether) and USDC (Circle) decline this year as the tokens were traded for fiat dollars and taken out of circulation. For USDT, reserves stabilized at around $67 billion after nearly $18 billion in buybacks from Tether.

As for the USDC (issued mainly on Ethereum), Circle reduced its supply to almost 40 billion dollars, after having flirted with 48 billion during a particularly interesting February. A dynamic that, at the time, had suggested to analysts of the highly respected company Messer what the USDC was going to dethrone the USDT in October – that is, now…

Today, the opposite seems to be happening. USDT regains strength momentumwhile the USDC clearly seems to be losing some:

5 Months After The Collapse Of Terra'S Ust, Where Is The Stablecoin Market?  (Decryption)

MakerDAO’s DAI Makes Big Breakthrough in DeFi

In the stablecoin market, it’s not just USDT and USDC. The DAI of MakerDAO (the largest decentralized organization hosted on the Ethereum network) is gaining unprecedented traction. A breakthrough that is particularly visible when looking at the indicator of velocity.

Velocity: an activity indicator

Velocity is a metric that measures the activity of a stablecoin. It calculates a relative turnover, that is to say a kind of coefficient of the volumes that are exchanged between the accounts in the respective network of each token. Velocity is therefore proportional to the size and frequency of transactions.

In the image below, the supply over 1 year was adjusted by the velocity coefficient. We can see that DAI has rapidly grown in popularity dominating all other tokens. This is particularly due to its increasing use as collateral crypto-asset in at DeFi.

And at velocity of the DAI impresses, we also note that the USDC is engaged in a good dynamic in terms of exchanges, unlike the other large stablecoins. Note, however, that velocity is measured on-chainso it can be assumed that with off-chain moves the board may be different.

5 Months After The Collapse Of Terra'S Ust, Where Is The Stablecoin Market?  (Decryption)

After the Binance coup, the BUSD regains a lot of ground against the USDC

If you follow a bit of crypto news, it will not have escaped you that Binance has decided toimpose “his” stablecoin in its ecosystem, starting on September 29 (see our article BUSD or nothing!).

A unilateral decision that spared the USDT from Tether, however, with the rest (USDC, USDP and TUSD) being automatically converted into BUSD – and the xxx/USDC type trading pairs therefore deleted.

As expected, the supply of BUSD has recently crossed the threshold of $21 billion. That of the USDC fell during the same period. At adjusted scales, the dynamics of the two stablecoins have reversed:

5 Months After The Collapse Of Terra'S Ust, Where Is The Stablecoin Market?  (Decryption)

Specifically, the share of volumes spot of BUSD has increased because it is now the base of all crypto/stablecoin pairs (ex: BTC/BUSD) on Binance, along with USDT.

However, USDT continues to dominate trading volumes on centralized exchanges (CEX). As for USDC, it is relatively little used, but it remains a popular quote currency for trading on decentralized exchanges (DEX) and dominates DeFi more generally:

5 Months After The Collapse Of Terra'S Ust, Where Is The Stablecoin Market?  (Decryption)

Ethereum vs Tron: mixed fortunes for the two main stablecoin blockchains

And on the blockchain side, precisely, Tron seems to have the preference of individuals for their transactions. Transfers of less than 1000 dollars are continuously growing on the Tron blockchain, while Ethereum’s share is stagnating. When we know the persistent problem of gas fees on ethereumthis is obviously not a surprise.

5 Months After The Collapse Of Terra'S Ust, Where Is The Stablecoin Market?  (Decryption)

USDT, USDC and now DAI: Should we fear the US Treasuries rush?

We reported to you a few days ago that Tether had decided to get rid of its last reserves in commercial papers (corporate bonds), to replace them with US Treasuries. No less than 30 billion treasury bills are involved, out of the 68 billion reserves backed by USDT.

Shortly before Tether, MakerDAO announced its desire to play it safe by gradually abandoning USDC for US Treasuries in the reserves of its DAI. So far, USDC is indeed 50% of DAI’s crypto-asset collateral.

This massive shift from stablecoins to obligations USwhich serve as safe investment in a period of severe macroeconomic turbulence, is already causing some economists to fear the worst. On CNBCBritish economist Carol Alexander expressed concern about emerging systemic risks:

“Suppose that in the near future, instead of $80 billion, we have $200 billion [en réserves de stablecoins, ndlr]most of which are liquid US government securities. […] So a USDT crash would have a huge impact on US currency markets and push global markets into recession.”

Carol Alexander

Carol Alexander may be referring to the disturbing centralization of USDT and USDC tokens. According to the company Saintlyanalysis specialist on-chain, 80% USDT is held by addresses valued at over $1 million. That’s about $54 billion. Same observation on the USDC, where the addresses holding more than one million dollars concentrate 85% USDCs.

The impact of the future MiCA regulation is difficult to define

Last week, the European Council voted the regulation on the Crypto Asset Markets (MiCA) – of which here is the text – which should come into force in 2024. Where the text interests us is on the new rules which prohibit the collection of interest by investors on stablecoins. A binding measure that could motivate the securitization of tokenized money market funds or commercial bank deposits, which do not fall under the MiCA regulation and would then be free to pay interest…

In addition, the MiCA text would require regular reporting on the “adverse impacts on climate and other environmental impacts [produits par] consensus mechanisms “. We can therefore think that the stablecoins issued on Ethereum, after its transition to the proof of stake, are not threatened. Nor those issued on Tron.

The most worrying change concerns the limitation to 200 millions euros in the daily volume traded of stablecoins non backed in euros. Nonsense knowing that the overwhelming majority of stablecoins are backed by the dollar. Circle’s USDC is capitalized at $40 billion, while the very recent EUROC (still from Circle) is capitalized at $74.5 million as of this writing…

5 Months After The Collapse Of Terra'S Ust, Where Is The Stablecoin Market?  (Decryption)

—

We have come to the end of this mini-dossier on the state of stablecoins and their market. Stablecoins are indeed one of the most fascinating instruments in the crypto ecosystem despite their … stability 🙂. Indeed, in recent weeks, the fall of the euro against the dollar (more than 20%) has led many individuals and crypto whales to turn to stablecoins pegged to the dollar.

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