Stablecoins growth outlook in 2020: A report

Value transferred using stablecoins surpass amount transferred using BTC for the first time ever in June 2020.

By · Jul 15, 2020 . 11min read

A recent report by coinmetrics shows that stablecoins growth outlook in 2020 has been nothing but impressive. It grew by over 100% hitting over $12 billion combined market cap just within 4 months in 2020.

Stablecoins shot into limelight with exchanges listing them. The first and still the largest is Tether – USDT obviously. Even though Tether started slowly, many quarters opine it contributed to the bull run of 2017 when Bitcoin price hit $20,000. Tether supply grew to over $1.4 billion by January 2018. This beats its $1 million and $10 million of 2016 and 2017 respectively.

Concerns propped up as to Tether’s claim of backing every USDT it mints with a $1 deposit in the bank. In other words, there were doubts that the 1:1 peg ratio of the USD and USDT is all untrue.

The proliferation of Stablecoins challenging Tether’s market dominance

As Tether keeps facing its troubles especially from NYAG slamming with lawsuits, other stablecoins were being introduced.

USDC which was in the news recently for blacklisting an address holding $100,000 in funds was launched in conjunction with Circle launched September 2018. And by July 2020, it hit the $1 billion valuation mark in market cap. GUSD by Gemini and PAX also launched the same year. Their creators back them with U.S. dollar reserves.

As the ethos of decentralization is for power devolution as compared with a single entity controlling the supply of all existing stablecoin especially with Tether’s apparent shady practices, MakerDAO created DAI – an ethereum based decentralized stablecoin in 2017. But instead of backing the DAI with bank reserves, MakerDAO pegged it to the U.S. dollar using collateralized crypto assets like ETH and other ERC20 tokens.

DAI’s strong $1 peg would get tested by the popular stock market crash which happened on March 12, 2020. As a stablcoin backed by collateralized debt positions of assets within the MakerDAO ecosystem, frantic liquidation of assets backing the DAI caused the price to shoot above its peg. MakerDAO went ahead to explain this to its somewhat frantic community as at then.

Tether, the undisputed king in the arena of stablecoins

Despite newer stablecoins introduction and Tether’s uncertainty because of its connection with embattled Bitfinex exchange, it did not only maintain its position as stablecoins market leader it also kept growing astronomically.

By the end of 2019 Tether’s USDT was already minted across 4 chains namely: bitcoin’s Omni, Ethereum, EOS and TRON. As the COVID- 19 market crash swept through sparking off more than 50% drop in the value of most crypto assets, Tether’s market kept seeing a huge pump.

Within two weeks of the epic crash of March 12, over $800 million new USDT/ETH were issued. This adds to the $740 million USDT/ETH already issued between January through March 11. Additionally, USDT/TRX supply would increase by over $2 billion by the end of June. With these issuance topping the billion-dollar mark, other stablecoins scrambled for market share within the hundred million dollars category. Perhaps, this why Tether is called the “Cartel’s coin”.

Stock and crypto-assets downturns, an uptick for the dollar hence Tether and other stablecoins growth

The dollar is the world’s global reserve and the official currency for stock markets and the global cryptocurrency industry. As market bleeds across Wall Street and Cryptodom, the need to cash outgrows stronger as people panic. Stablecoin acts as a good hedge for those dodging market crash while still remaining invested in digital assets. A move to and fro from crypto to dollar would normally incur fees sometimes substantial. But with stablecoins like USDT and others, money parked on the sideline waiting for profitable market entry position are moved back in with less friction. This explains why stablecoins growth in 2020 during and even after the March 12 coronavirus market crash.

Stablecoins continued relevance in and outside cryptocurrency industry gives it a positive future outlook

Exchanges and traders use stablcoins as quote currency pairs far more than fiat currencies. It can also serve as replacements for fiat onramps. Especially by providing liquidity for crypto investors who do not have a direct fiat gateway.

Stablecoins fits well for global remittances and cross-border payments. This is because of their relative ease of transfer and faster settlement times. While volatility is turning king bitcoin as a suitable candidate for a store of wealth and value, stablecoins comfortable takes up the medium of exchange of position.

Perhaps, this is why we saw value transferred using stablecoins surpass amount transferred using BTC. This stablecoins growth happened for the first time ever in June 2020.

Source: Coinmetrics

Stablecoins and the Big picture

As the world continues to embrace digital assets and necessitating the growing need for digital and crypto-assets in areas like international payments and global remittances, stablecoins will see increased adoption as a medium of exchange.

In the end, stablecoins may just be the catalyst for widespread and unparalleled crypto user adoption. A gospel continually preached by crypto advocates may become a dream come true.

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