Stablecoins are tokens whose values are pegged to other assets, like commodities or fiat currencies, to stabilize their prices. This, according to a report from CoinGecko.
The research report from CoinGecko explains that “by maintaining a peg to a specific fiat currency, asset, or commodity, most stablecoins essentially act as a bridge between real-world assets and crypto by representing them as tokens on the blockchain.”
Since 2014, firms such as Tether and Circle have “issued tokenized currencies backed by real-world financial assets such as bank deposits and short-term notes.”
The CoinGecko research study also mentioned that users can “onboard into crypto directly through these firms, converting real-world deposits into newly minted stablecoins.”
The report added that “conversely, they can also redeem the stablecoins back into fiat currency.”
However, the CoinGecko report clarified that “not all stablecoins are fully backed by tangible real-world assets.”
Decentralized stablecoins such as DAI and AMPL “maintain their peg through mechanisms such as over-collateralization of crypto assets or rebasing, allowing stablecoins to be minted permissionlessly, while also maintaining their peg without a centralized entity. “
CoinGecko further noted that “the true value of a stablecoin is its ability to maintain its peg at all times, even during periods of market volatility.”
Unfortunately, many have failed this test. In this report, CoinGecko has examined “everything from the type of stablecoins and total market cap, number of transactions, and emerging stablecoin models.”
CoinGecko pointed out that fiat-backed stablecoins “surged to $161.2B Market Cap in 2024, but Still Below 2021’s Peak of $181.7B.”
CoinGecko also mentioned that “commodity-backed stablecoins grew 18.1% in 2024 to $1.3B, just 0.8% of fiat-backed stablecoins.”
The report also noted that stablecoins “accounted for 8.2% of the global crypto market cap, with dominance increasing during periods of market weakness.”
And 8.7M addresses “hold stablecoins, with 97.1% holding USDT, USDC, or DAI.”
Stablecoins Still Have Trouble “Retaining Their Peg Stability, Especially During Times of Uncertainty”
The total market cap of the top 10 fiat-pegged stablecoins has “grown tremendously since 2020. Throughout the bull run of 2020 – 2021, it grew 3,121.7% from $5.0 billion at the start of 2020 to $181.7 billion in March 2022.”
Stablecoin market cap fell after the collapse “of Terra and its UST stablecoin, before reversing in November 2023. The total fiat-pegged stablecoin market cap has since grown 35.4% from $119.1 billion to $161.2 billion as of August 2024.”
The top three USD stablecoins – Tether (USDT) at $114.4 billion, USDC ($33.3 billion), and Dai (DAI) at $5.3 billion, “make up 94% of the total stablecoin market cap. Meanwhile, USDT has continued to solidify its dominance at 70.3%.”
Meanwhile, USDT has continued to “solidify its dominance at 70.3%, while USDC’s share has been on a steady decline after the US banking crisis in March 2023. Stablecoins pegged to other currencies, such as the Euro, Yen, and Singaporean Dollar, only account for 0.2% of the market share.”
The market cap of commodity-backed stablecoins “hit $1.3 billion as of August 1, 2024. Tether Gold (XAUT) and PAX Gold (PAXG) make up 78% of the market cap, despite new entrants such as Kinesis and VeraOne.”
Despite commodity-backed stablecoins rising “by 212x since 2020, and 18.1% in 2024, they only account for 0.8% of the market cap of fiat-backed stablecoins.”
Precious metals are the commodities of choice “for these stablecoins, but other commodities have been launched recently. The Uranium308 project launched its own stablecoin, pegged to the price of a pound of U308 uranium compound. However, it has since become inactive.”
As of August 1, 2024, stablecoins accounted “for 8.2% of the total crypto market cap. In early 2020, stablecoins were a much smaller segment of the industry. At the start of 2020, they only made up ~2% of the global market cap but reached a peak of 6% during the start of the DeFi runup.”
Stablecoin dominance increased “between November 2021 and May 2022 due to the exponential growth of Terra’s UST stablecoin, rising from 4.8% to 15.6%.”
In the aftermath of its collapse, the market share of stablecoins plummeted before surging to a high of 18.4% as investors fled to stability in the ensuing bear market.
The top 10 stablecoins have 8.7 million holders, with “the top 3 largest stablecoins, USDT, USDC, and DAI accounting for 97.1% of holders. USDT has the largest number of holders, with more than 5.8 million wallets, 2.6x higher than its closest competitor, USDC.”
The CoinGecko report added that “other eight stablecoins have less than a million holders each, with DAI held by just over 505,000 wallets.”
As stated in the CoinGecko report, these stablecoins grew “much quicker in 2020, but growth slowed down drastically in 2022 as fears of insolvency crept into other stablecoins after the fall of Terra.”
In the past, CoinGecko pointed out that stablecoins struggled “to maintain peg, especially during times of volatility. However. established stablecoins such as USDT, USDC, and DAI are now able to better maintain their peg to $1. Stablecoins tend to de-peg during volatile periods such as the March 2023 banking crisis due to uncertainty surrounding deposits at Silvergate and Signature Bank.”
The CoinGecko report also revealed that newer stablecoins, “especially partially algorithmic ones like USDD, DAI, and FRAX, tend to be more volatile and depend on market arbitrage to retain peg.”
The CoinGecko report concluded that “however, there has also been a fair share of failures, such as Iron Finance and Basis Cash, both of which failed to maintain peg.”