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At the beginning of this year, the total supply of stablecoins in circulation was about $5 billion. Today, this figure has exceeded $25 billion. This article focuses on an in-depth analysis of USDT, USDC, and DAI transactions in the current cryptocurrency market compared to the beginning of 2020.

According to CoinMarketCap data, the price closed at $23,241.34 on December 23, with an overall increase of 23.60% in December. The price of the coin remained at a historical high of more than $20,000 for a week. The good investment performance also kept the market trading sentiment highly active.

According to MESSARI's monitoring of stablecoin data, as of December 22, the daily trading volume of stablecoins was approximately US$71.487 billion, an increase of approximately 183.63% from January 1. Among them, the daily trading volume of the largest stablecoin USDT has increased by 187.65% this year. After mid-November, the daily trading volume of stablecoins has increased significantly, reaching a peak of US$189.307 billion on November 17, but in terms of growth trend, the upward trend of coin prices is more significant than the growth trend of stablecoin trading volume.

Judging from the balance of exchanges, in the bull market environment, the market funds are generally pouring in. According to CryptoQuant statistics, as of December 23, the total balance of stablecoins in all exchanges was about 2.558 billion, an increase of 126.67% from January 1. The total balance has been basically stable at more than 2 billion recently.

According to Nansen’s statistics, Binance, Huobi and Uniswap are currently the three largest stablecoin trading markets. It is worth noting that among the top 15 markets in terms of stablecoin trading volume, there are 4 DeFi platforms, including Curve, Sushiswap and Balancer in addition to Uniswap.

If we look at the transaction volume data, you will find that the total amount of stablecoins settled on the chain has exceeded 1 trillion US dollars, which is four times the amount in 2019! The exponential growth is mainly due to several factors, such as:

- DeFi boom

- The rise of yield farming “food” tokens

- Popularization of stablecoin-collateralized derivatives

By tagging each USDT, USDC, and DAI transaction, we can analyze which stablecoin people in the DeFi market prefer to use to process transactions.

Before we get into the topic, let's explain how to understand the series of charts involved below. Each point in the chart represents an Ethereum address, and each colored line represents a token transfer. There will also be some label annotations of well-known exchanges and DeFi platforms in the chart. Each line on the graph represents two connected user addresses. You can imagine that there is a spring between the user lines, and these springs will pull the addresses in different directions until they stabilize. The more transactions between a group of addresses, the closer they are to each other on the graph.

Stablecoins add to DeFi applications

At the beginning of this year, the cryptocurrency market began to gradually "lean" towards DeFi, with USDT mainly used in centralized exchanges, DAI mainly used in DeFi, and USDC used both in centralized exchanges and widely used in DeFi. It is worth mentioning that although Coinbase is a centralized cryptocurrency exchange, many people still trade DAI on the exchange. Frankly speaking, Coinbase should be between centralized exchanges and DeFi.

In addition, the USDT, USDC, and DAI clusters are also very different. DAI basically dominates the DeFi industry, while USDT is an important stablecoin used for arbitrage in centralized exchanges and is widely used in the Asian market.

(Green: USDT, Blue: USDC, Yellow: DAI The distance between nodes roughly depends on their correlation)

USDT

Past (left in the picture below) and present (right in the picture below: November 2020)

Tether is by far the largest stablecoin by market cap, with a market cap of over $20 billion at the time of writing. While most Tether trading activity is still concentrated on centralized exchanges, it has also gained a prominent position in DeFi. The chart below clearly shows that the number of addresses trading USDT on decentralized exchanges (as shown below on the right) has increased dramatically since the beginning of 2020. Of course, Tether has its own problems and is currently in a legal dispute with the US federal government.

Another thing to note is that there are not many addresses using USDT on both centralized exchanges and decentralized applications, and from the chart you can also see that there are not many lines connecting the two clusters. We see this trend in every major stablecoin: the DeFi industry is developing independently and is gradually starting to decouple from centralized cryptocurrency exchange use cases.

(Green: The distance between USDT nodes roughly depends on their correlation)

USDC

Past (left in the picture below) and present (right in the picture below: November 2020)

Since the beginning of this year, USDC has made great progress in the DeFi field, but on the other hand, USDC seems to have lost its appeal to users of centralized exchanges - of course, this phenomenon is not surprising considering Tether's influence in the centralized exchange field.

Circle, a backer of USDC, has taken a series of decisive steps to promote the rapid growth of this stablecoin in the DeFi field. The USDC BootStrap Fund has provided $3.1 million in funding to many DeFi protocols, such as Compound, dYdX, Uniswap, and PoolTogether.

On the other hand, by establishing strategic partnerships with governments such as Venezuela and companies such as Visa, Circle is gradually promoting the mainstream adoption of USDC.

Another factor that prompted USDC to enter the DeFi field is that it is very easy to pledge and is used in almost every newly launched liquidity mining project. This method can indeed quickly "invade" the emerging field of decentralized finance.

(Blue: The distance between USDT nodes roughly depends on their correlation)

DAI

Past (left in the picture below) and present (right in the picture below: November 2020)

Since the beginning of 2020, Maker’s decentralized stablecoin DAI is the only crypto asset that has suffered a “Waterloo” in the DeFi field. DAI mainly relies on over-collateralization with non-US dollar crypto assets to maintain its exchange rate and the US dollar anchor - this idea is actually true decentralization, rather than being directly backed by US dollar assets like USDC and USDT.

However, the main problem with DAI is the lack of liquidity, which will cause DAI to be unable to meet market demand, and then cause the DAI anchor rate to be too high. On March 12, the "Black Thursday", the price of ETH plummeted, and a large number of loans fell below the collateral threshold, triggering a liquidation procedure, which was carried out in the form of a collateral auction. Users can obtain collateralized Ethereum by bidding for DAI, but this time due to the market collapse, some liquidators won the auction of the Ethereum collateral liquidation procedure with a bid of DAI at a price of 0, which also caused MakerDAO to have a debt of $4 million in outstanding loans - a similar incident occurred again in November 2020.

Maker has since added more collateral options, but making a more centralized stablecoin, USDC, a collateral option seems to be more appealing to users.

(Yellow: The distance between DAI nodes is roughly determined by their correlation)