Stablecoin Transaction Volume was $1.7 Trillion in Q2 2021, Up 59% from Q1
Image courtesy of 123rf.

Stablecoin Transaction Volume was $1.7 Trillion in Q2 2021, Up 59% from Q1

Stablecoins are seeing more activity than ever before. USDT is still in the lead, but USDC is catching up.
Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.

A recent report by digital asset analysis firm Messari reviews DeFi’s performance in Q2 of 2021, revealing how stablecoin activity has surged spectacularly. As per the report, in Q2, stablecoins have cumulatively facilitated a staggering $1.7 trillion in transaction volume, up 1,090% year-over-year and 59% compared to Q1 of 2021.

Stablecoin Performance in Q2 2021 Explained

In Q2 2021, stablecoins resumed their upward surge as their cumulative monetary base reached over $107 billion, up 70% since Q1 and a whopping 803% year-over-year. In addition, stablecoins transacted an unseen volume of $1.7 trillion, which was more than double what they transacted the previous quarter.

Image Courtesy of Messari.

USDT remains to be the largest stablecoin with more than $60 billion in circulating supply, though it is gradually losing its dominance. On the flip side, stablecoins like USDC, BUSD, and DAI continue to grow at a rapid pace. In the last quarter, USDC, BUSD, and DAI managed to grow their market share to 23%, 9%, and 5%, respectively.

Moreover, decentralized stablecoins like DAI, UST, and LUSD, which aim to keep their value close to USD through an automated system of smart contracts, also underwent substantial growth. At the beginning of Q2, decentralized stablecoins managed to constitute approximately 10% of the total stablecoin supply — which was a new record.

Among the decentralized stablecoins, DAI takes the lead as it accounts for around 5% of the entire stablecoin supply. While DAI’s market share sank in Q1 largely due to the rise of UST, it managed to recover in Q2 and resume its growth as Terra stalled out.

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Why Are Stablecoins Seeing More Use?

Digital assets like Bitcoin and Ethereum—though vastly different in terms of value proposition—bring several obvious benefits to the table: low-cost transactions, 24/7 availability, decentralization, permissionless, security, and more. However, almost all cryptocurrencies are prone to extreme volatility, which makes them unfavorable for many traders.

On the other hand, stablecoins offer many of the benefits of digital assets along with price stability. While this means that there won’t be any price appreciation over time, it is also an indication that there is no volatility — and with that no need for constant worry and discomfort. 

Looking at the situation from a different perspective, stablecoins are complementary to volatile cryptocurrencies. In essence, the price of cryptocurrencies swings and fluctuates nearly all the time. This brings the opportunity to exploit the market day and night, though traders can’t always stay active.  

After all, traders also need to go on summer vacations and, once in a while, take some time off work. In these situations, leaving all their wealth in cryptocurrencies would be quite risky — recall the May 2021 crash. Thus, stablecoins give traders the choice to avoid extreme volatility while still staying in the crypto ecosystem.

Can Stablecoins Coincide with CBDCs?

Stablecoins are the backbone of the crypto industry. As these assets grow to be more powerful and win mainstream adoption, the crypto ecosystem is actually improving. 

Stablecoins enable users to instantly get crypto exposure. In contrast, it may take days or even weeks to buy digital assets with fiat money stored in a traditional bank account. Not to mention that these banks may, at times, ban payments to crypto businesses.

Moreover, stablecoins could be seen as serious competitors to governments’ CBDCs. Last week, China’s central bank warned that stablecoins pose serious risks to global financial systems. It is no secret that the entire crypto industry alongside DeFi intends to disrupt the modern financial system, yet it is surprising how China primarily targeted stablecoins in recent commentary.

Arguably, this expresses that China is well aware of how stablecoins can take the lead on its digital yuan. It was broadly discussed that China’s digital yuan could be the new global money, even flipping the US dollar. However, as long as there are stablecoins, it’s hard to see China’s digital yuan gaining such an edge.

Do you think CBDCs will grow to be popular as long as there are better alternatives like stablecoins? Let us know in the comments below.

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