Although the global economy this year is confined by the uncertainty brought about by the new crown pandemic, the huge growth of cryptocurrency still makes 2020 the year of stable currency. Although some people attribute this growth to crypto enthusiasts’ strong interest in decentralized finance, others see it as a bullish signal confirming the flow of fiat currencies into the crypto ecosystem.
With the continuous development of the DeFi sector, the popularity of stablecoins has also become higher and higher. These stablecoins have obtained high returns from various decentralized lending projects in the past. Stablecoins also help bridge the gap between legal currency and digital assets. At the beginning of this year, the trading volume of stablecoins was high, and its cumulative trading volume exceeded the $90 billion mark for the first time in a fiscal quarter. Although Tether (USDT) still holds the largest share of the stablecoin market, Dai and USDC have also achieved tangible growth in 2020.
Among them, Tether (USDT), a stable currency pegged to the U.S. dollar, has developed rapidly. The market value of USDT has surged in recent weeks, which may also be one of the important reasons that have contributed to the recent rebound of Bitcoin.
USDT’s market value has increased nearly 4 times this year
Paolo Ardoino, who is the chief technology officer of Bitfinex and Tether, said on his Twitter recently that the supply of USDT has increased by 1 billion in 9 days, setting the second fastest expansion rate in its history. The fastest record in history was set on September 4, 2020, when the circulating supply of USDT increased by 1 billion within 8 days.
According to CoinMarketCap data, since 2020, the market value of Tether has increased nearly 4 times. According to the current circulating supply, Tether’s market value ranks fourth among all cryptocurrencies.
USDT and other so-called stablecoins provide a legal threshold for connecting the cryptocurrency market, thereby minimizing price fluctuations and ensuring easy redemption of digital assets after they are sold. Although USDT claims to be backed by real USD reserves, Tether has never produced a complete audit report of its bank account.
In 2019, a Bloomberg report stated that Tether’s USDT was not fully pegged to the US dollar, but only 74% of the circulating supply was backed by cash and short-term securities.
Tether is also operated by the same management group of Bitfinex, one of the world’s largest cryptocurrency exchanges. Some have accused Tether and Bitinex of manipulating the 2017 bull market, but due to the complexity of the decentralized cryptocurrency market, it is difficult to prove such a claim.
Legal experts told Cointelegraph earlier this year that the scope of market manipulation for emerging assets like Bitcoin will be difficult to determine.
At the same time, Tether is still the leading stablecoin in the industry, accounting for more than three-quarters of the market value of stablecoins.
Why fiat stablecoins are favored by the market
According to reports, the increase in the total supply of stablecoins has puzzled many market observers. Some analysts believe that as people hedge their positions, the increased supply of stablecoins is a bullish sign. Others think this is a bearish signal for people to exit the cryptocurrency space.
However, the growth of stablecoins also coincides with countries starting to study their own CBDC. With the continuous calls for tokenization of traditional assets, newcomers such as XSDG entering the stablecoin market will surely become the new normal.
As volatility increases, more developers will pay close attention to the changes that are taking place between stablecoins to create financial innovations that reduce volatility. The question now is whether stablecoins like Tether will surpass the usefulness of Bitcoin, Ethereum and other cryptocurrencies as cross-border payment protocols, as well as the fiat currencies anchored by them.
From the idea of the first stablecoin in 2012 to the proposal of the Mastercoin project (that is, bundling cryptocurrencies with traditional assets to reduce the impact of price fluctuations), developers have become accustomed to using U.S. dollars as assets that act as stabilizers.
Currently, developers are experimenting with other stable assets, such as gold, other fiat currencies, and even cryptocurrencies.
Behind the popularity of the stablecoin market
In the digital currency bull market, traditional technology and financial companies have also become more concerned about stablecoins. Many companies plan to launch their own stablecoins in 2021.
Credit card issuing giant VISA intends to connect their global payment network with the USDC stablecoin issued by Circle International Finance on the Ethereum blockchain. This cooperation between VISA and Circle means that VISA credit card issuers will begin to integrate USDC software into their platform and begin to use USDC as the currency for payment and receipt. This also means that VISA’s 60 million merchants will be able to enter the digital through USDC. Come from the world of currency.
On December 1, the Libra Association, a subsidiary of Facebook, the world’s largest social media giant, also announced that they will rename their stablecoin project Libra to Diem, and will launch a stablecoin pegged to the US dollar in January 2021.
In addition, there is also a Wall Street giant, a Nasdaq listed company, an international group called ZK Internaitonal, which is also working on a stable currency idea. Last week, it revealed its intention to fund its subsidiary xSigma Lab and enter the DEFI field to create xSigma Defi. The project is aimed at stable currency decentralized exchanges.
The above is the layout of various financial giants in the stable currency track in the recent period. In fact, the development momentum of stablecoins has indeed become more and more rapid in the past two years.
Although there are still many problems with stablecoins that people criticize, the voices of various disputes are endless. However, its market position has also attracted the attention of governments of various countries, and the relevant legislation of stable currency is also under discussion.
A few days ago, members of the United States Congress proposed a new bill that may implement comprehensive supervision of all stablecoins. If approved, any stablecoin-related services must first be approved by multiple government agencies before they can be performed.
This bill, known as the “Stablecoin Act,” aims to “protect consumers from the risks posed by emerging digital payment tools, such as Facebook’s Libra and other stable currencies.
The main initiator of the bill, Democratic Congresswoman Rashida Tlaib, said that the purpose of the “Stablecoin Act” is to protect people of color and other minorities who cannot access regulated financial services. Said that this is “to prevent cryptocurrency providers from repeating the criminal activities of traditional large banks against low- and middle-income residents.”
What are the fiat stable coins?
The stablecoins linked to the US dollar are:
Tether(USDT)
Like all other stablecoins, Tether’s goal is to allow investors to use cryptocurrencies linked to the U.S. dollar to store profits from crypto trading. To quote Tether’s official website: “Every USDT is always linked 1:1 with the traditional assets we hold in the reserve.” This means that for every 1 USDT issued, there will be a corresponding in the company’s account. 1 dollar reserve. According to data from Coinmarketcap, Tether is currently the most popular stable currency with a market value of more than $15 billion and a daily trading volume of more than $40 billion.
Although Tether’s issuing company claims that its tokens are 100% backed by liquid reserves, in the past, many parties have questioned the company’s statement. However, despite a lot of controversy, the number of USDT in circulation has recently increased from just over 4 billion U.S. dollars in early 2020 to 15 billion U.S. dollars. Most experts believe that DeFi has made a great contribution to the large-scale coinage of USDT.
In addition, the rapid growth of USDT’s dominance has enabled the currency to surpass payment platforms such as Bitcoin and PayPal in terms of daily transfer volume, with a figure exceeding 3.5 billion U.S. dollars. As the Ethereum network’s GAS fees continue to rise, Tether now plans to migrate most of its supply to a faster network.
USDC
USDC was issued in 2018 by Circle, a financial service provider focused on blockchain, and is a stable currency that is 1:1 pegged to the US dollar. In terms of the transparency of stablecoins, Circle claims on its website that USDC reserves are reviewed monthly by top accounting services and made public.
Like Tether, USDC is also growing rapidly, with issuance increased by more than $1.8 billion in the past six months. Just recently, Center (a consortium established by Circle and Coinbase responsible for the development of the USDC governing body) announced the expansion of USDC from Ethereum to other blockchains. This is to ensure that USDC maintains sufficient flexibility to cope with the large-scale financial innovations that have emerged in DeFi projects.
PAX
According to its website, Paxos, the company behind the PAX Standard stablecoin, stated that its stablecoin is the most liquid and the most strictly regulated in the world. PAX is listed on more than 150 exchanges, with a daily trading volume of more than 100 million U.S. dollars, and the total amount of PAX coins in circulation is 2 billion U.S. dollars.
Like its peers, PAX is packaged as a digital dollar, which can be used to quickly transfer funds anywhere, anytime around the world. The stablecoin is built on Ethereum’s ERC-20 protocol, and customer funds are deposited in a separate account guaranteed by the Federal Deposit Insurance Corporation (Federal Deposit Insurance Corporation).
BUSD
Binance USD (BUSD) is a stablecoin pegged to the U.S. dollar jointly launched by one of the largest cryptocurrency exchanges, Binance and Paxos. So far, the stablecoin has been approved by the New York State Department of Financial Services. Therefore, other financial institutions in the New York area can custody BUSD without obtaining NYDFS’s prior custody license.
In order to make itself the preferred stablecoin for DeFi applications, Binance USD was recently launched on Dapper Labs’ Flow blockchain. Through cooperation with Dapper Labs—the first team to develop crypto games such as Crypto Kitties—BUSD is expected to open the door to developers who want to build stablecoin-based DeFi applications. BUSD is also very popular on the Binance Smart Chain, which is a smart contract-enabled blockchain designed to accelerate the development of the DeFi protocol.
Thanks to Binance’s dominance in the market, BUSD is also one of the most amazingly growing stablecoins. Its market value has grown from around 20 million at the beginning of the year to more than 500 million US dollars at present.
TUSD
Tether has been criticized for its centralized management and lack of transparency, while TrueUSD (TUSD) claims to do the opposite. TUSD is a stable currency linked to the U.S. dollar based on the TrustToken platform, and claims to operate based on transparent ethics, providing the public with real-time proof of funds deposited in custodial bank accounts.
Even the TUSD team cannot access the escrow account, because instead of the management team, smart contracts are in place to help keep the anchor ratio between the U.S. dollar and TUSD coins at 1:1.
In March last year, TUSD worked with an accounting firm to develop a dashboard that enables third parties to view the TUSD in circulation and its mortgaged fiat currency assets.
In addition to TUSD, the TrustToken platform also has stable currencies backed by other legal currencies (including British pounds, Australian dollars, Canadian dollars and Hong Kong dollars). They were all launched in 2019 and most of them are actively traded on Uniswap, which is a decentralized exchange hosting various DeFi protocols.
The projects that anchor the currencies of other countries include:
XSDG
On October 5th, Xfers, a payment company headquartered in Singapore, launched the XSGD stablecoin linked to the Singapore dollar. As the first token priced in Singapore dollars, the developers of XSDG expect that the token will provide companies and individuals with a way to access the cryptocurrency industry.
In order to ensure that users can easily access, even with non-custodial wallets, they can freely withdraw and trade tokens. In addition, given that the stablecoin claims to comply with the travel rules of the Financial Action Task Force (FATF), financial institutions can also use it for cross-border remittances. Like most stablecoins, the team behind XSGD is promoting the adoption of the token in the DeFi ecosystem, and the token is currently available as an ERC-20 token on Ziliswap.
The project leader Aymeric Salley said in an interview with Cointelegraph: “Now is the time for stablecoins that are linked to other national currencies (such as the Singapore dollar) to appear.”
Saga(SGA)
Saga, a UK-based blockchain company, launched an alternative to Facebook’s stablecoin Libra at the end of 2019. Similar to Libra, SGA maintains its value by pegging to a basket of fiat currencies. The difference between the Saga and the Libra project is that the value of SGA tokens is linked to bank deposits in the Special Drawing Rights of the International Monetary Fund. The Special Drawing Rights of the International Monetary Fund is a basket of assets, with the U.S. dollar and the euro, renminbi, pound sterling, and yen as the heaviest.
In addition, Saga will not profit from stablecoins, although it will act as the main issuer of tokens. Saga founder Ido Sadeh Man said in an interview with CNBC that the goal of the stablecoin is to serve as a supplementary currency for cross-border payments, because consumers will use it to make payments on e-commerce platforms such as Amazon. Due to the lack of clear regulations, Saga is currently not available in the United States and Israel.
EURS
EURS is a Euro stablecoin issued by Stasis. Stasis is a blockchain-related company that aims to tokenize traditional assets. The company claims that it has assembled various licensed financial intermediaries, including accounting firms and law firms, to ensure the compliance and stability of its tokenized assets.
The EURS stablecoin was launched in June 2018. EURS is built on the simplified EIP-20 standard of Ethereum. It is the first stablecoin to be anchored to the euro, and it also provides continuous transparency through the daily reports of its liquidity providers. So far, EURS has issued nearly 32 million coins, with a daily trading volume of slightly more than $1 million.
Monerium
Monerium is a financial technology company founded in 2015, hoping to simplify access to digital currencies. The company launched its first stablecoin in January 2019 with the participation of ConsenSys and Hof Holdings after receiving a seed round of funding of US$2 million led by Crowberry Capital.
Monerium’s digital currency is specially designed to release numbers equivalent to major legal currencies to customers who can customize their currency basket. Monerium claims to support its stable currency by enabling open regulatory and technical standards to achieve the goal of decentralized finance. Currently, Monerium’s services are available in six countries/regions: the United Kingdom, Germany, Denmark, France, Lithuania, and Sweden.
