2020 has been quite an eventful year for cryptocurrencies. From the explosion of Decentralized Finance (DeFi) to the Bull Run of Bitcoin, the indicators all point to a maturing sector. And let’s not forget the ‘big money’ that flowed into digital assets from institutional investors like PayPal, Square, MicroStrategy, and MassMutual.
But while digital currencies such as Bitcoin are generally known for their volatility, stablecoins have distinguished themselves from their far more highly-volatile brethren. As the name suggests, stable coins focus on price stability by being pegged to real-life assets such as gold or a fiat currency.
Stablecoins provide an easy on-chain way to hedge against rapid cryptocurrency price actions. Traders generally view stablecoins as an intermediary between holding fiat currency and riskier digital assets on an exchange. To put this in perspective, a typical fiat transfer to or from a crypto exchange can take between 10 minutes to several hours, depending on how congested the network is. Considering how highly-volatile the crypto market is, this seemingly short time is enough to record significant losses or gains. Stablecoins bridge this gap by allowing traders to easily take advantage of positive price actions or hedge against price drops almost immediately. This inherent advantage has made stablecoins very popular and almost indispensable.
Bohdan Prylepa agrees with the pertinent nature of stablecoins. Prylepa who is the CTO and co-founder of Prof-it Blockchain Ltd and a COO of Bitcoin Ultimatum—a Bitcoin hard fork, noted that stablecoins are here to stay. He said:
“Stablecoins are an indispensable part of crypto and DeFi, especially. Traders yearn for stability without restrictions, and stablecoins like USDT, DAI, and USDC available in various platforms like Ethereum, Tron, and the Omni Network, provide exactly what they want. For each stablecoin in circulation are cash and liquid assets backing it and maintaining the peg. I expect blockchains to process even more stablecoin 2021 as DeFi matures in Ethereum and other networks like Waves.”
A few years ago, no one would have thought about the boom of the DeFi sector. Similarly, no one would have thought that PayPal will roll out cryptocurrency products. However, it is happening. As the popular saying goes – “change is always constant.” Prylepa’s companies are trying to solve Bitcoin’s transparency problem. The co-founder noted:
“Bitcoin Ultimatum and Prof-it are two firms that want to be on the right side of history. We want to build an open-source future. Helping in financial inclusion but privately, efficiently, and securely.”
Prylepa’s statement on the inevitability of stablecoins came after on-chain volumes of stablecoin transactions surpassed the $1 trillion mark in 2020. For clarity, on-chain volumes are transactions that happen on blockchains.
Just last year, on-chain transaction volumes of stablecoins sat at around $248 billion. In the last 12 months, there has been a 3.22 increase, suggesting a growing stablecoin economy.
According to the data from The Block Research, Ethereum was the most popular blockchain in this regard, capturing about 83.5% of the market. TRON and Omni were the first and second runners-up with a market share of 14.5% and 2.1%, respectively.
Meanwhile, Tether has remained the most popular stablecoin, controlling 73% of the market. Other stablecoins like USDC and DAI are far behind with a market share of 15% and 7%, respectively.
The surge in stablecoin demand may not be unconnected with the DeFi boom of 2020. As of press time, the total value of locked assets in several DeFi projects was $13.31 billion, up from around $671 million at the beginning of the year. Stablecoins are used to provide liquidity in several high-yield DeFi platforms, such as Curve, Uniswap, and Aave.