Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.
Five years after Bitcoin (BTC) forever changed our perception of money, the bandage for cryptocurrency volatility emerged in the form of stablecoins. Launched in 2014, Tether (USDT) surpassed a $15 billion market cap this year, mirroring the success of Bitcoin – the first to come and remain dominant. Now, with all stablecoins crossing the $20 billion cap, DeFi and stablecoins compliment each other to create a new dawn of finance.
What’s the Total Value of Stablecoins?
Although other stablecoins are far behind Tether, they have also grown in value immensely. With the phenomenon of decentralized finance (DeFi), 2020 has been particularly fertile.
From January 2020 to today, the following has taken place:
Tether (USDT) went from $4.1 billion market cap to over $15 billion.
USD Coin (USDC) went from a $516 million market to over $2.6 billion.
TrueUSD (TUSD) went from a $154 million market cap to over $507 million.
Binance USD (BUSD) went from $17 million market cap to over $584 million.
Dai (DAI) went from a $95 million market cap to over $874 million.
Altogether, with other more stagnating stablecoins such as Paxos Standard (PAX), stablecoins have surpassed the $20 billion market cap. This is quite remarkable as this market cap accounted for all cryptocurrencies just three years ago, in early 2017, but prior to BTC’s $20,000 peak.
This is how some of the biggest stablecoins are positioned within the crypto space:
As you can tell from their naming scheme, these stablecoins are all anchored to real-world assets, such as the USD, in order for them to have stable prices. This is the entire point of stablecoins – having stable prices. Imagine a world in which the same tub of ice cream costs $2 on Monday and $5 on Friday.
That would be the world you would have to live in if you only had cryptocurrencies at your disposal. It is not difficult to understand then why investors, traders, and big businesses would put a high demand on stablecoins. Additionally, it is much easier to trade with stablecoins than it is to go from cryptocurrency to fiat currency.
DeFi Creates the Perfect Ecosystem for Stablecoins
It is no coincidence that 2020 is the year of stablecoins and DeFi, with triple-digit percentages in their growth. As decentralized platforms that mimic traditional financial instruments of loaning and borrowing, DeFi might as well be considered a godsend to stablecoins — and vice versa.
Stablecoins provide the security of price stability, making them more adoptable by the masses. Likewise, people are exposed to less risk by using stablecoins. For example, when at the end of 2018 cryptocurrencies dropped between 25% -70%, Tether only dropped by a mere 8%.
However, prior to DeFi, investors tended to bypass stablecoins due to that same price stability. After all, most BTC holders of today hope to reach the price threshold of $100,000 per BTC within the next five years. Not even the most expert stock trading would yield such gains.
Speaking of yields, outside of DeFi yield farming, stablecoins are the star of the East Asian professional market, with Tether accounting for 93% of stablecoin transactions in the region. The drive towards stablecoins was greatly bolstered by China’s ban on yuan-to-crypto conversions.
It is much easier to circumvent this ban with stablecoins from OTC brokers. Therefore, stablecoins have become mediators for all Chinese crypto enthusiasts, just as they have become the mediators for DeFi investors.
Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird's US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firms specializing in sensing, protection and control solutions.