Cointime

Download App
iOS & Android

State of Stablecoins: Signs of Returning Liquidity

Repost from Tanay Ved Coin Metrics’ State of the Network: Issue 236: “State of Stablecoins: Signs of Returning Liquidity” The full report and all related findings are available on the official website of Coin Metrics.

Introduction 

Stablecoins have emerged as a crucial pillar within the dynamically evolving digital asset ecosystem. Serving as a stable store of value, they bring resilience amidst tides of volatility, providing stability and utility not only in mature markets but also emerging economies grappling with high inflation and barriers to accessing financial infrastructure. The borderless and around-the-clock nature of stablecoins enable seamless cross-border transactions and remittances, making them an instrumental medium of exchange. Beyond these functions, stablecoins also act as a vital bridge to the decentralized finance (DeFi) and traditional financial economy, underpinning trading and lending operations and serving as a barometer for activity on public blockchains. 

This unique value proposition has propelled the rise of the digital dollars market, peaking at $155 billion in market capitalization in 2022 before declining to $112 billion, a reflection of various challenges that have tempered growth. However, with recent uplifts in digital asset valuations, there's been a noticeable resurgence in stablecoin supply, suggesting a potential revival of on-chain liquidity and the demand for stablecoins in both falling and rising markets. 

In this issue of Coin Metrics’ State of the Network, we take a closer look at stablecoin supply, usage and adoption, as well as emerging trends shaping the landscape as we potentially transition into a different market regime. 

Market Cap & Supply Trends

The market capitalization of the asset class today primarily comprises USDT and USDC, which make up the lion's share of total supply. The recent rise has been fuelled by the growth of Tether (USDT) on the Ethereum ($41 billion) and Tron ($48 billion) networks respectively, resulting in an all time high market cap of $88 billion for Tether, as Circle’s USDC stabilizes at $22.5 billion. Despite the dominance of fiat-collateralized stablecoins, the growth of stablecoins collateralized by crypto-assets (i.e, ETH) and off-chain assets (i.e, public securities) underscores the growing diversity and adaptability of the asset class. 

Source: Coin Metrics Network Data

This is reflected in the chart below, which illustrates weekly changes in stablecoin supply over the year. In the aftermath of significant events like the Luna collapse in June 2022, and the Silicon Valley Bank (SVB) crisis in March, we observed a notable decline in total stablecoin supply, indicative of wavering market confidence. However, since October 2023, the aggregate stablecoin supply has trended upwards, marking a shift towards positive growth. This upward trend can be interpreted as a leading indicator of improving liquidity on-chain, suggesting an environment where more capital is available for deployment. 

Source: Coin Metrics Network DataTo understand where the increase in stablecoin supply is going, a closer examination of supply held by smart contracts is revealing. For instance, USDC, a popular asset in decentralized finance (DeFi) applications had a significant portion of its supply in smart contracts, peaking over $20 billion in March 2022. However, over the year, this figure has seen a contraction, halving from its high of $14 billion in March to $7 billion as of December 2023. In contrast, Tether (ETH), predominantly held in externally-owned accounts (EOA’s), has witnessed a different trend. Its presence in smart contracts has grown, rising from $4 billion at the start of this year to over $6 billion. 

Source: Coin Metrics Network Data

Adoption Trends 

Source: Coin Metrics Network Data

Transitioning from supply in smart contracts, we shift our focus to broader stablecoin adoption trends, as reflected by the number of accounts with substantial holdings. While the number of addresses holding greater than $100k USDC has declined to 13k addresses, and those for USDT on Ethereum remain relatively stable, a different story unfolds for USDT on the Tron network. Tether on Tron has experienced a consistent growth in adoption, with nearly 40k addresses holding greater than $100k. This can be attributed to its lower transaction fees and potentially increasing use in emerging economies across parts of Latin America, Africa, and Asia. In these regions, where populations often face high inflation and barriers to accessing dollar-denominated financial services, easy and cost-effective access to dollars through stablecoins have become particularly desirable.

Rising Usage in Lending & Trading Markets

Source: DeFi Balance Sheets

Stablecoins also play a crucial role in decentralized finance (DeFi). Within DeFi lending markets, these assets serve as a form of stable collateral, enabling users to earn interest on their digital asset holdings. The chart above shows utilization rates for major stablecoins on Aave, shedding light on the proportion of deposited funds being borrowed on the platform. In other words, the utilization rate is a barometer for the demand for stablecoins and capital availability in pools, with applications like Aave and Compound serving as a crucial proxy for overall activity. 

There also exists a crucial relationship between pool utilization and interest rates: when a pool has ample capital but low borrowing demand (i.e, low utilization) interest rates are lowered to attract borrowers. Conversely, when liquidity in a pool is scarce (i.e, high utilization), interest rates rise to incentivize debt repayments and new deposits. Outside of the dislocation seen in March 2023, utilization rates for USDT, USDC & Dai have climbed to levels last seen in 2021—an indication of increased demand for stablecoin collateralized loans and a rising appetite for leveraging these assets for yield generation strategies. 

Coin Metrics Market Data

Stablecoin spot trading volumes have seen a notable uptick, underscoring their utility as a quote asset on both centralized and decentralized exchanges. This stems from their ability to provide a stable reference point for valuing other assets, making them a popular medium for entering and exiting positions. 

As seen in the chart above, trusted spot volumes have been dominated by USDT, reaching $18.8 billion on November 15th. Notably, these volumes are second only to those witnessed during major market events such as the Luna, FTX and Silicon Valley Bank collapse. USDC volumes have also risen lately, reaching $2.5 billion in November—marking an all-time high in USDC trading volume. Conversely, volume for other stablecoins have seen a downfall, driven predominantly by the reduction in BUSD volumes, which Binance announced it will end support for this month. Overall, the rising trend in volume reflects an increasing appetite amongst traders and investors to gain exposure to crypto assets with potential for appreciation, particularly as the broader crypto markets are on the rise.

Emerging Trends in Stablecoin Markets

Having grasped the current state of the stablecoin landscape, we can zoom out to understand overarching trends shaping stablecoins. Amongst this, yields offered through both on-chain and off-chain sources are an important piece of the puzzle as they impact flows of capital and also help determine avenues that may attract capital under varying economic conditions. 

A major theme over the last two years has been the rise in US Treasury yields amid the cycle of financial tightening. The existence of a high yield on the “risk-free rate” has presented an opportunity cost for stablecoin holders and issuers alike, fueling capital rotation out of on-chain markets. This demand for yield and interest rate sensitivity has therefore been serviced by the rise in tokenized treasuries and interest-bearing stablecoins.

Source: Coin Metrics Labs & US Department of the Treasury

Maple Finance’s USDC Cash Management Pool serves as an example of a growing trend to enable yield-bearing products in DeFi. The pool provides access to yield sourced from US Treasury bills and targets a net APY of the Secured Overnight Financing Rate (SOFR) enabling accredited investors to deposit USDC. Since its inception, the pool has seen substantial activity, receiving a cumulative of $75 million USDC and amassing $15 million in capital.

Source: Coin Metrics ATLAS

The popularity of this trend is also evidenced in the diversification of the collateral bases for stablecoin products such as MakerDAO’s Dai into real-world assets (RWA’s) like public securities. However, the growth of stablecoin supply rates on applications like Aave may offer another alternative for stablecoin holders to productively park their assets, potentially fueling a capital rotation into DeFi applications and products collateralized primarily by on-chain assets.

Conclusion 

The expanding supply of stablecoins serves as a clear indicator of rising activity and usage within the digital asset ecosystem. This is particularly evident in the supply and adoption trends examined, with Tether on Tron leading the charge. Despite challenges in the regulatory environment in the United States and a complex political landscape, stablecoin liquidity has shown impressive resilience. This expansion showcases the wide utility of stablecoins, through avenues such as DeFi pools to exchanges and even in diverse yield generating opportunities. Amid a broader market rally, these trends not only underscore growing usage, but also evidence the central role stablecoins play in the crypto-economy.

Comments

All Comments

Recommended for you

  • Spot gold continues to fall

    spot gold continues to decline, with the decline expanding to 2%, at $3315.49 per ounce.

  • BTC breaks through $93,500

    the market shows BTC has broken through $93,500, now trading at $93,506.58, with a 24-hour increase of 6.12%. The market is fluctuating greatly, please manage your risks.

  • U.S. strategic Bitcoin reserves may announce details in the coming weeks

    Trump signed an executive order in early March this year proposing to establish a national strategic reserve of Bitcoin and other tokens, and requested the Treasury Secretary to submit an evaluation report on the legality and feasibility of the plan within 60 days. With less than two weeks remaining until the 60-day deadline set by Trump's executive order, this means that more details about the US Bitcoin reserve will soon be disclosed. Market expectations for this may be one of the important catalysts for the recent rebound in cryptocurrency. In addition, any comments questioning the independence of the Federal Reserve have also had a positive spillover effect on Bitcoin.

  • Bitcoin's market share once rose to 64.67%, but now fell back to 64.30%

    On April 23rd, data, the Bitcoin dominance (BTC.D) briefly rose to 64.67% this morning, reaching a new high since February 2021, and is currently back at 64.30%. The high Bitcoin dominance indicates the quietness of the altcoin market, but it may also suggest that a bottom reversal is imminent. Based on historical data, when Bitcoin dominance surged above 60% in November last year, altcoins started a small bull market. In 2019 and 2021, Bitcoin dominance reached highs above 70%, followed by a broad and spectacular uptrend.

  • Spot gold breaks $3,500/ounce for the first time, setting a new record high

    spot gold soared, breaking through the $3500 per ounce integer mark for the first time, rising 2.14% intraday, and rising more than $870 year-to-date. 

  • BTC falls below $88,000

    market shows BTC has fallen below $88,000, now trading at $87,996.01, with a 24-hour increase of 0.68%. The market is fluctuating greatly, please be prepared for risk control.

  • Spot gold hits a new all-time high again, breaking through $3,450/ounce

    spot gold continued yesterday's upward trend, breaking through the $3450/ounce mark for the first time, rising 0.76% during the day, and accumulating over $820 in gains for the year. 

  • BTC breaks through $88,000

    market shows that BTC has broken through $88,000, now trading at $88,011.16, with a 24-hour increase of 1.23%. The market is volatile, please manage the risk.

  • BTC breaks through $88,000

    the market shows BTC breaking through $88,000, now reported at $88,059, a 24-hour increase of 4.25%, with significant market fluctuations, please manage risks.

  • BitradeX Partners with NVIDIA for Deep Collaboration, Leveraging GPU Power to Lead the AI Trading Revolution

    BitradeX has announced its partnership with NVIDIA through the NVIDIA Developer Program, entering into a deep collaboration to optimize its core AI trading model, ARK Trading Model, with NVIDIA’s A100 and H100 GPU clusters. This collaboration has significantly enhanced ARK's decision-making speed and precision, reducing decision latency from 2.1 milliseconds to just 0.07 milliseconds. This deep partnership marks a technological breakthrough for BitradeX, propelling the industry into the "AI Quantification 2.0 Era" and offering users a more efficient trading experience in the global financial market.