Stablecoin Watch: Weathering the Crypto Winter
- By Dalvir Mandara
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- 8 min read
Summary
- USD Coin (USDC, +2%) and TrueUSD (TUSD, +1%) are the only stablecoins to register a gain in market cap over the past month.
- Magic Internet Money (MIM, -48%) registered the largest loss in market cap over the past month. It is also the most volatile.
- US 3M treasury yields continue to outpace stablecoin (lending) yields.
Stablecoin Adoption Remains Elevated
Regardless of the recent downturn in the broader cryptocurrency market, known as the ‘crypto winter,’ stablecoin growth, as measured by various on-chain metrics, has continued to accelerate.
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Summary
- Coin (USDC, +2%) and TrueUSD (TUSD, +1%) are the only stablecoins to register a gain in market cap over the past month.
- Magic Internet Money (MIM, -48%) registered the largest loss in market cap over the past month. It is also the most volatile.
- US 3M treasury yields continue to outpace stablecoin (lending) yields.
Stablecoin Adoption Remains Elevated
Regardless of the recent downturn in the broader cryptocurrency market, known as the ‘crypto winter,’ stablecoin growth, as measured by various on-chain metrics, has continued to accelerate.
We consider the top four stablecoins by market cap (USDT, USDC, BUSD, and DAI) as a proxy for the entire stablecoin market. Indeed, the total market cap of these four stablecoins is around $136bn which accounts for over 96% of the total stablecoin market cap.
Looking at various on-chain metrics on aggregate (we take a 30-day moving average) across the four stablecoins, we observe that:
- The total daily on-chain transfer volume (the total amount of coins transferred on-chain) has been increasing exponentially lately (Chart 1). This metric is up 10% YTD and a staggering 97% MoM. Zooming out, it is at new all-time highs of c.31bn. The number of stablecoin transactions is growing.
- The number of active addresses (the unique number of addresses that were active in the network either as a sender or receiver) can be used as a proxy for overall activity across the network (Chart 2). It is up 22% YTD and 30% MoM. Stablecoin network activity is increasing.
- The number of new addresses (number of unique addresses that appeared for the first time in a transaction of the native coin in the network) can be used as a proxy for new adoption across the network (Chart 3). It is flat YTD but up 31% MoM.
True, stablecoins have had a rocky year, but adoption is still going strong. Despite peg breaks and volatility, people are still using stablecoins. That is the bottom line.
Latest Developments
Market Cap and Peg Risk
The market caps of USD Coin (USDC, +2%) and TrueUSD (TUSD, +1%) are up the most over the past 30 days (Chart 4). Meanwhile, all other stablecoins we track are down in terms of their market cap, with Magic Internet Money (MIM, -48%) down the most.
Neutrino USD (USDN) has de-pegged the most. It dropped to weekly lows of around 84 cents on Monday and has been trading below 90 cents since the start of December. USDD is also de-pegged.
Volatility
The one-month annualised volatility of Magic Internet Money (MIM, 32%) replaces USDN as the most volatile (Chart 3).
Over the past three months, FRAX, USDP, and USDN are the most volatile stablecoins. The same is true over the past year, except USDD replaces USDP.
Fiat-collateralised stablecoins remain the least volatile.
Yields
Turning to yields, on Compound, average (over the past seven days) lending and borrowing rates for Tether (USDT) spiked to over 20% on 10 November, which pushed the seven-day average up (Charts 6 and 7). Average lending rates for USDT have come down to around 1.7% whilst average borrow rates sit at around 3.4%.
TrueUSD (USDP) has the highest average lending rate (3.1%) and borrow rate (4.7%) out of the five we track on compound. Meanwhile, DAI has the lowest average lending rate and USDC has the lowest average borrow rate.
On average, US 3M treasury yields remain higher than the (lending) yields on all five stablecoins we track on Compound.
Appendix
USDT: Tether is a fiat-collateralised stablecoin primarily issued on the ethereum and bitcoin blockchains. It aims to be pegged 1:1 against the US dollar. Tether’s reserves are not backed 100% by US dollar deposits. Instead, they are backed by reserves that include cash, cash equivalents, short-term deposits, commercial paper, corporate bonds, funds, precious metals, secured loans, and other investments including digital tokens.
USDC: USD Coin is a fiat-collateralised stablecoin issued as ERC-20 tokens on the ethereum blockchain. It is 100% backed by cash and short-dated US treasuries. USDC publishes a monthly public attestation of 100% reserves.
BUSD: Binance USD is a fiat-collateralised stablecoin issued as ERC-20 tokens on the ethereum blockchain. It is backed 100% by USD held in Paxos-owned US bank accounts and US treasury bills (including through repurchase agreements and/or money-market funds invested in US treasury bills). Paxos is a New-York-regulated financial institution and publishes a monthly public attestation of 100% reserves.
TUSD: TrueUSD is a fiat-collateralised stablecoin issued by the TrustToken platform that is issued as ERC-20 tokens on the ethereum blockchain. It aims to maintain its 1:1 peg against the US dollar by being fully collateralised by US dollars using multiple escrow accounts to reduce counterparty risk.
USDP: Pax Dollar is a fiat-collateralised stablecoin issued as ERC-20 tokens on the ethereum blockchain. It aims to be pegged 1:1 against the US dollar by holding USD reserves in Paxos owned US bank accounts.
DAI: Dai is a crypto-collateralised stablecoin that attempts to maintain a 1:1 peg against the US dollar by depositing other crypto assets into smart contracts on the ethereum blockchain every time a new DAI token is issued. DAI is maintained by a decentralised autonomous organisation (DAO) called MakerDAO. And since the mechanism is maintained by a system of smart contracts, it has higher decentralisation than the centralised entities controlling USDT, USDC, or BUSD.
MIM: Magic Internet Money is a crypto-collateralised stablecoin launched by the DeFi platform Abracadabra. MIM is backed by interest-bearing tokens (ibTKN).
UST: TerraUSD is a crypto-collateralised hybrid stablecoin native to the Terra blockchain. To mint 1 UST, $1 worth of UST’s reserve asset, LUNA, must be burned. The idea was to try and ensure LUNA’s long-term growth. More people buying into UST means more LUNA gets burned, which should make the remaining LUNA supply more valuable. However, the system collapsed recently when UST de-pegged from the US dollar.
FRAX: Frax Finance is a fractional-algorithmic stablecoin that uses both collateralisation and an algorithmic process to create its decentralised stablecoin that is pegged 1:1 to the US dollar. Only stablecoins (currently, USDC) are accepted as collateral by the protocol.
FEI: FEI is an algorithmic stablecoin that aims to be pegged 1:1 against the U.S dollar that is backed mostly by ETH.
Dalvir Mandara is a Quantitative Researcher at Macro Hive. Dalvir has a BSc Mathematics and Computer Science and an MSc Mathematical Finance both from the University of Birmingham. His areas of interest are in the applications of machine learning, deep learning and alternative data for predictive modelling of financial markets.