USDT's market value has increased nearly 4 times this year, and fiat stablecoins are booming in the bull market

Text: Neicanjun

Despite the uncertainty brought about by the COVID-19 pandemic, the huge growth of cryptocurrencies has made 2020 the year of stablecoins. While some attribute this growth to the strong interest of crypto enthusiasts in decentralized finance, others see it as a bullish signal confirming the inflow of fiat money into the crypto ecosystem.

As DeFi continues to grow, the popularity of stablecoins, which have historically earned high returns from various decentralized lending projects, has also increased. Stablecoins also help bridge the gap between fiat currencies and digital assets. The beginning of this year saw high trading volumes for stablecoins, with their cumulative trading volume exceeding 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 seen tangible growth in 2020.

Among them, the stablecoin Tether (USDT) pegged to the US dollar has developed rapidly. The market value of USDT has surged in recent weeks, which may also be one of the important reasons that helped drive the recent rebound of Bitcoin.

USDT's market value has nearly quadrupled this year

Paolo Ardoino, CTO of Bitfinex and Tether, recently tweeted that the supply of USDT increased by 1 billion in 9 days, the second fastest expansion in its history. The fastest record in history was set on September 4, 2020, when the circulating supply of USDT increased by 1 billion in 8 days.

According to CoinMarketCap data, Tether's market value has increased nearly 4 times since the beginning of 2020. Based on the current circulating supply, Tether's market value ranks fourth among all cryptocurrencies.

USDT and other so-called stablecoins provide a fiat gateway to the cryptocurrency market, minimizing price volatility and ensuring easy redemption of digital assets after they are sold. While USDT claims to be backed by real U.S. dollar reserves, Tether has never produced a full audit of its bank accounts.

In 2019, a Bloomberg report stated that Tether’s USDT was not fully pegged to the U.S. dollar, but only 74% of the circulating supply was backed by cash and short-term securities.

Tether is also run by the same management group behind Bitfinex, one of the world’s largest cryptocurrency exchanges. Some have accused Tether and Bitinex of manipulating the 2017 bull run, though proving such claims is difficult due to the complexity of the decentralized cryptocurrency market.

Legal experts told Cointelegraph earlier this year that the scope of market manipulation for an emerging asset like Bitcoin would be difficult to determine.

Meanwhile, Tether remains the dominant stablecoin in the industry, accounting for more than three-quarters of the stablecoin market capitalization.

Why are legal stablecoins favored by the market?

The reported increase in the total stablecoin supply has puzzled many market observers. Some analysts believe that the increase in the stablecoin supply is a bullish sign as people hedge their positions. Others believe that it is a bearish sign that people are exiting the cryptocurrency space.

However, the growth of stablecoins also coincides with the beginning of research on their own CBDCs by various countries. As calls for tokenization of traditional assets continue, newcomers to the stablecoin market such as XSDG will surely become the new normal.

As volatility increases, more developers will be paying close attention to what is happening among stablecoins to create financial innovations that mitigate volatility. The question now is whether stablecoins like Tether will surpass the utility of Bitcoin, Ethereum and other cryptocurrencies as cross-border payment protocols, and the fiat currencies to which they are themselves anchored.

From the ideation of the first stablecoin in 2012 to the proposal of the Mastercoin project, which bundles cryptocurrencies with traditional assets to mitigate the impact of price fluctuations, developers have become accustomed to using the US dollar as an asset that acts as a stabilizer.

Currently, developers are experimenting with other stable assets such as gold, other fiat currencies, and even cryptocurrencies.

Behind the boom in the stablecoin market

With the bull market of digital currencies, traditional technology and financial companies are also paying more attention to stablecoins. Many companies plan to launch their own stablecoins in 2021.

Credit card issuing giant VISA intends to connect their global payment network with USDC, a stablecoin issued by Circle International Financial Corporation on the Ethereum blockchain. This cooperation between VISA and Circle means that VISA credit card issuers will begin to integrate USDC software into their platforms and start using USDC as a currency for payment and collection, which also means that VISA's 60 million merchants will have the opportunity to enter the world of digital currency through USDC.

On December 1, the Libra Association, owned by Facebook, the world's largest social media giant, also announced that it would rename the stablecoin project Libra they developed to Diem, and would launch a stablecoin pegged to the US dollar in January 2021.

In addition, a Wall Street giant, a Nasdaq-listed company, an international group called ZK International is also eyeing stablecoins. Last week, it revealed that it plans to provide funding for its subsidiary xSigma Lab to enter the DEFI field and build the xSigma Defi project, which is aimed at stablecoin decentralized exchanges.

The above is the layout of various financial giants in the stablecoin track in recent times. In fact, the development momentum of stablecoins has indeed become increasingly rapid in the past one or two years.

Although stablecoins still have many problems that people criticize and various disputes are heard, their market position is increasingly attracting the attention of governments around the world, and relevant legislation on stablecoins is also under discussion.

Recently, members of the U.S. Congress proposed a new bill that could impose comprehensive regulation on all stablecoins. If passed, any stablecoin-related services would first need to obtain approval from multiple government agencies before they can be carried out.

The bill, dubbed the Stablecoin Act, seeks to “protect consumers from the risks posed by emerging digital payment instruments, such as Facebook’s Libra and other stablecoins.”

The bill's main sponsor, Democratic Congresswoman Rashida Tlaib, said the purpose of the Stablecoin Act is to protect people of color and other minorities who do not have access to regulated financial services. She said it is to "prevent cryptocurrency providers from repeating the criminal activities of traditional large banks targeting low- and middle-income residents."

What are the legal stablecoins?

The stablecoins pegged to the US dollar are:

Tether (USDT)

Like all other stablecoins, Tether aims to allow investors to store profits from crypto trading using a cryptocurrency pegged to the U.S. dollar. Quoting Tether's official website: "Each USDT is always pegged 1:1 to the traditional assets we hold in our reserves." This means that for every 1 USDT issued, the company will have a corresponding 1 dollar reserve in its account. According to Coinmarketcap data, Tether is currently the most popular stablecoin, 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, multiple parties have questioned the company’s claims in the past. However, despite the controversy, the amount of USDT in circulation has recently increased to $15 billion from just over $4 billion at the beginning of 2020. Most experts believe that DeFi has made a huge contribution to the massive minting of USDT.

Furthermore, USDT’s dominance has grown rapidly, allowing the coin to surpass Bitcoin and payment platforms such as PayPal in terms of daily transfer volume, with the figure exceeding $3.5 billion. As the gas fees of the Ethereum network continue to rise, Tether now plans to migrate most of its supply to the faster network.

USDC

USDC was issued by Circle, a blockchain-focused financial services provider, in 2018 and is a stablecoin pegged 1:1 to the U.S. dollar. As for the transparency of the stablecoin, Circle claims on its website that the USDC reserves are audited monthly by top accounting services and disclosed to the public.

Like Tether, USDC is also growing rapidly, with issuance increasing 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 USDC's governing body) announced that it would expand USDC from Ethereum to other blockchains. The move is intended to ensure that USDC remains flexible enough to cope with the large-scale financial innovations emerging in DeFi projects.

PAX

Paxos, the company behind the PAX Standard stablecoin, says its stablecoin is the most liquid and regulated in the world, according to its website. PAX is listed on more than 150 exchanges, with daily trading volume exceeding $100 million and a total of $2 billion in PAX coins in circulation.

Like its peers, PAX is packaged as a digital dollar that can be used to quickly transfer funds around the world at any time. The stablecoin is built on Ethereum's ERC-20 protocol, and customer funds are held in segregated accounts insured by the Federal Deposit Insurance Corporation.

BUSD

Binance USD (BUSD) is a stablecoin pegged to the US dollar launched by Binance, one of the largest cryptocurrency exchanges, 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 prior custody permission from NYDFS.

In an effort to establish itself as the go-to stablecoin for DeFi applications, Binance USD recently launched on Dapper Labs’ Flow blockchain. Through its partnership with Dapper Labs — the team that pioneered crypto games like Crypto Kitties — BUSD is expected to open the door for developers looking to build stablecoin-based DeFi applications. BUSD is also popular on Binance Smart Chain, a smart contract-enabled blockchain designed to accelerate the development of DeFi protocols.

Thanks to Binance’s dominance in the market, BUSD is also one of the most rapidly growing stablecoins, with its market capitalization having grown from around $20 million at the beginning of the year to more than $500 million at present.

TUSD

While Tether has been criticized for its centralized management and lack of transparency, TrueUSD (TUSD) claims to be the opposite. TUSD is a stablecoin based on the TrustToken platform, pegged to the U.S. dollar, and claims to be run on a transparent ethical basis, providing the public with real-time proof of funds held in custodial bank accounts.

Even the TUSD team does not have access to the escrow account because instead of managing the team, smart contracts are in place to help maintain the 1:1 peg ratio between the U.S. dollar and the TUSD coin.

Last March, TUSD partnered with an accounting firm to develop a dashboard that enables third parties to view TUSD in circulation and its collateralized fiat assets.

In addition to TUSD, the TrustToken platform also has stablecoins backed by other fiat currencies, including GBP, AUD, CAD, and HKD. They were all launched in 2019 and are mostly actively traded on Uniswap, a decentralized exchange that hosts various DeFi protocols.

Projects anchoring other countries’ currencies include:

XGD

On October 5, Singapore-based payments company Xfers launched its XSGD stablecoin pegged to the Singapore dollar. As the first token denominated in Singapore dollars, XSDG’s developers expect the token to provide businesses and individuals with a way to gain exposure to the cryptocurrency industry.

To ensure easy access for users, tokens can be freely withdrawn and traded even with non-custodial wallets. Additionally, given that the stablecoin claims to comply with the Financial Action Task Force (FATF) travel rule, 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 on Ziliswap as an ERC-20 token.

“It’s time for stablecoins pegged to other national currencies, such as the Singapore dollar, to emerge,” Aymeric Salley, the project’s lead, told Cointelegraph.

Saga (SGA)

Saga, a UK-based blockchain company, launched its alternative to Facebook's stablecoin Libra in late 2019. Similar to Libra, SGA keeps its value stable by being pegged to a basket of fiat currencies. Saga differs from the Libra project in that the value of the SGA token is pegged to bank deposits in the International Monetary Fund's Special Drawing Rights, a basket of assets that is weighted toward the U.S. dollar as well as the euro, yuan, pound sterling and yen.

In addition, Saga will not profit from the stablecoin, although it will act as the main issuer of the token. In an interview with CNBC, Saga's founder Ido Sadeh Man said that the goal of the stablecoin is to serve as a complementary currency for cross-border payments, as consumers will use it to pay on e-commerce platforms such as Amazon. Saga is currently not available in the United States and Israel due to a lack of regulatory clarity.

EURS

EURS is a Euro stablecoin issued by Stasis, a blockchain-related company that aims to tokenize traditional assets. The company claims that it brings together various licensed financial intermediaries, including accounting and law firms, to ensure the compliance and stability of its tokenized assets.

The EURS stablecoin was launched in June 2018. Built on Ethereum's simplified EIP-20 standard, EURS is the first stablecoin pegged to the euro and also provides continuous transparency through daily statements from its liquidity providers. So far, EURS has issued nearly 32 million coins with a daily trading volume of just over $1 million.

Monerium

Monerium is a fintech company founded in 2015 that wants to simplify access to digital currencies. The company launched its first stablecoin in January 2019, following a $2 million seed round led by Crowberry Capital, with participation from ConsenSys and Hof Holdings.

Monerium's digital currency is specially designed to issue digital equivalents of major fiat currencies to customers who can customize their currency baskets. Monerium claims to achieve the goal of decentralized finance by enabling open regulatory and technical standards to support its stablecoins. Currently, Monerium's services are available in six countries: the United Kingdom, Germany, Denmark, France, Lithuania, and Sweden.

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