By Sage D. Young
Compiled by: TechFlow
The market capitalization of all stablecoins has increased 30% this year, from $130 billion to nearly $170 billion, the highest level in more than two years. This reflects the public's growing enthusiasm for cryptocurrencies because it shows that users prefer to keep their funds on the blockchain rather than in traditional bank accounts.
“Globally, the adoption of digital assets is increasing as part of the trend toward financial digitization,” Paolo Ardoino, CEO of Tether, the largest stablecoin provider, said in an email to Unchained. “This adoption trend is driven by the increased demand for efficient cross-border transactions, the quest for financial inclusion, and the need for alternatives to the traditional banking system, especially in regions with unstable fiat currencies.”
Stablecoins are tokens that can be used on the blockchain and are designed to be pegged to a fiat currency to minimize volatility. They are often used for daily transactions due to their low volatility. While each stablecoin is designed to maintain a peg to a specific fiat currency (such as the US dollar), the way they maintain the peg is different. Some are backed by cash and cash equivalents, while others rely on crypto assets and short-term positions.
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Because stablecoins’ prices are designed to remain stable, their market capitalization is a good indicator of the size of the crypto ecosystem. Market capitalization shows “how many people are willing to keep their money or its equivalent on the blockchain rather than in a bank account,” said Aurelie Barthere, lead research analyst at blockchain analytics firm Nansen.
Here are the top six stablecoins by market cap that are driving the current 2024 cryptocurrency cycle:
1.USDT
Market capitalization: $118 billion
Year founded: 2014
Tether has issued five different stablecoins, with USDT being the largest, tracking the U.S. dollar and accounting for nearly 70% of the entire stablecoin market, Nansen data shows.
According to Nansen’s Barthere, Tether’s USDT grew from 48% of the total stablecoin market cap to 70% in early 2023, a “huge increase.”
Tether maintains its peg to the U.S. dollar by holding fiat currencies. According to its June transparency report, Tether’s reserves are mainly composed of U.S. Treasuries, money market funds, and overnight reverse repurchase agreements.
Read more: Tether reports record $5.2 billion in first half of 2024
Although Tether provides quarterly validation reports detailing its reserve backing, the company has not yet undergone a formal audit, a fact that has attracted a lot of criticism. In December, S&P’s first stablecoin stability assessment gave Tether a 4 out of 5 for its fiat currency peg, the second worst possible score.
According to DefiLlama, the Tron network holds just under 50% of the total USDT supply, followed by Ethereum at 39%. Although Ethereum lags behind Tron, the average USDT transaction size on Ethereum is much larger than on Tron, according to Artemis, an on-chain intelligence platform — $38,510 on Ethereum versus $6,550 on Tron.
2.USDC
Market value: $33.8 billion
Year founded: 2018
Circle’s flagship product reached an all-time high of $55.6 billion in market capitalization in July 2022, but had more than halved by December 2023.
The decline in USDC’s market value is primarily due to the impact of USDC’s depegging in March 2023, when two federally insured members of the Federal Reserve System — Silicon Valley Bank and Silvergate Bank — closed. Circle previously held a significant portion of its USDC reserve cash in these banks.
Circle’s position as a major player in the stablecoin ecosystem is also related to its relationship with Coinbase, the largest cryptocurrency exchange in the United States. The underlying technology of USDC was jointly developed by Coinbase and Circle. The exchange also acquired an equity stake in Circle.
Read more: Coinbase partners with Stripe to support USDC on Base
Coinbase is the largest holder of USDC on the Base network, a second-layer network incubated by the exchange. According to Nansen data, 20 of the top 21 USDC holders on Base belong to Coinbase, with each account holding $101 million worth of USDC. According to Coinbase's latest quarterly report, in the first half of the year ending June 30, 2024, Coinbase earned about $437.8 million in revenue from stablecoins, accounting for more than 14% of the company's total revenue of about $3 billion.
According to DefiLlama, two-thirds of USDC’s supply is on Ethereum, while data from Artemis shows that the average transaction size on Ethereum is $85,020.
3. USDS (formerly DAI)
Market value: $5.3 billion
Year founded: 2014
On Tuesday, DeFi giant MakerDAO rebranded to “Sky” and launched new versions of its stablecoin DAI and governance token MKR, which together have a combined market value of more than $7.1 billion.
Sky differs from Tether and Circle in that its stablecoin issuance is managed through a decentralized autonomous organization (DAO), and holders of the protocol governance token can participate in the decision-making of the platform. Tether and Circle do not have such a governance token. USDS is currently the largest decentralized stablecoin.
Read more: Why MakerDAO’s Token Lags Behind Other Tokens Despite Strong Revenues for the Protocol
The changes are part of the protocol’s “Endgame,” a major overhaul of the stablecoin issuer that will begin in 2022. According to a post on the governance forum, the implementation of Endgame, which includes a rebrand and an update to the protocol’s ecosystem token, is designed to make the benefits of DeFi accessible to a wider audience, not just early adopters.
Users holding DAI can convert it to USDS, “the upgraded stablecoin of the Sky ecosystem.” These DAI are backed by multiple cryptocurrencies such as Ethereum (ETH) and Wrapped Bitcoin (WBTC).
One point of contention when switching from DAI to USDS is the potential freezing feature of the new stablecoin, which allows authorized parties to decide who can use, hold, and trade the token and who can’t. Circle and Tether’s stablecoins also have similar freezing features.
According to a May governance post, while the freeze feature will not be implemented immediately at launch, governance members can vote to enable it in the future. “Future freeze functionality is expected to follow the legal rules of jurisdictions where Maker requires a high degree of legal certainty to ensure that recourse to RWA collateral can be enforced,” the post states.
Currently, 90% of DAI is stored in Ethereum smart contracts. According to Artemis data, the average transaction size is about $1.69 million, which shows that DAI is mainly used for large transactions rather than ordinary crypto users.
4.USDe
Market value: $2.9 billion
Year of establishment: 2024
In less than a year, Ethena's synthetic dollar product has reached a market cap of $2.9 billion. USDe is a new type of stablecoin that maintains its peg to the US dollar through the use of derivatives, specifically short-term futures positions. Ethena's USDe maintains its dollar peg by using staked ETH, SOL, and BTC as collateral and employing delta hedging strategies in the derivatives market to offset price fluctuations and ensure stability.
This means that every time the price of Ethereum drops by $1, Ethena loses $1 in its long position but gains $1 in its short position, keeping the USD value of the collateral stable.
Read more: Ethena’s USDe market cap has matched Solana’s stablecoin at over $3 billion.
Ethena’s initial rapid growth was fueled by crypto users scrambling to earn high yields, which at one point reached 37%, largely due to market enthusiasm and the start of a bull run. The yield on staking Ethena’s USDE comes from rewards for staking Ethereum and the funding rate Ethena earns from traders opening short-term derivatives positions.
However, Ethena's growth has slowed significantly, with its market capitalization falling 20% from a high of $3.6 billion in July, as Ethena's USDE staking yield has fallen to 4%.
Funding rates have been positive for most of this year, helping Ethena offer attractive yields. But according to CoinGlass, there were multiple days in August when funding rates were negative, meaning Ethena needed to pay fees to traders who were long, reducing Ethena’s yields and appeal.
The average transaction amount of USDE on Ethereum is currently $122,460, higher than Paypal’s PYUSD, Circle’s USDC, and Tether’s USDT, but lower than MakerDAO’s DAI.
5.FDUSD
Market value: $2.7 billion
Year of establishment: 2023
Hong Kong-based crypto custodian First Digital Group saw its stablecoin start the year with a market cap of $1.8 billion, but has since grown by nearly 50% to nearly $2.7 billion. FDUSD is backed by cash and cash equivalents held in accounts at regulated financial institutions in Asia.
FDUSD’s growth was aided by Binance’s promotional campaign. From December 2013 to April 2024, Binance offered zero-fee trading for six FDUSD spot and margin trading pairs.
While more than 97% of FDUSD is stored on Ethereum, the remaining supply is on Binance Smart Chain. Meanwhile, blockchain data collated by Etherscan shows that the top eight holders of the stablecoin all belong to Binance, and together they own almost 98% of the total supply.
CoinGecko shows that the BTC/FDUSD trading pair on Binance had the highest trading volume in the past 24 hours, reaching $1.9 billion, while BTC/USDT on MEXC and Binance ranked second and third respectively.
6.PYUSD
Market cap: $1 billion
Year of establishment: 2023
Fintech giant PayPal, which owns peer-to-peer payment platform Venmo, has seen its stablecoin PYUSD grow more than fourfold in market value from about $234 million to $1 billion. PYUSD’s growth began in June 2024, when PayPal launched PYUSD on Solana, having originally launched on Ethereum in August 2023. In August of this year, the amount of PYUSD on Solana surpassed the total on Ethereum, and now accounts for 64% of its total share.
Read more: PayPal Stablecoin Trading Goes Live on Bybit
According to a report released by CCData on Wednesday, on-chain data shows that more than 50% of PYUSD is used as collateral for quote pairs on lending protocols and decentralized exchanges. One example is Kamino Finance, a Solana-based lending protocol, where users can deposit their PYUSD to earn an annualized yield of 9.94%.
Read more: Liquidity Mining: What It Is and How It Works
“Over 45% of $PYUSD in circulation has been deployed to Kamino,” Kamino said on X on Monday.
According to Artemis data, the average PYUSD transaction amount on Solana is $8,700, while on Ethereum it is $71,120.
