Editor's Note: This article comes fromChain reference (ID: lianneican), Author: Internal Reference Jun, reprinted by Odaily with authorization.
Editor's Note: This article comes from
Chain reference (ID: lianneican)
, Author: Internal Reference Jun, reprinted by Odaily with authorization.
Although the global economy has been constrained by the uncertainty brought about by the new crown pandemic this year, the huge growth of cryptocurrencies still makes 2020 the year of stablecoins. While some attribute this growth to the heightened interest in decentralized finance among crypto enthusiasts, others see it as a bullish sign confirming the influx of fiat currencies into the crypto ecosystem.
As the DeFi sector continues to grow, so does the popularity of stablecoins, which have generated high returns from various decentralized lending projects in the past. Stablecoins also help bridge the gap between fiat currencies and digital assets. Trading volumes for stablecoins were high at the start of the year, with their cumulative trading volume surpassing the $90 billion mark for the first time in a single fiscal quarter. While Tether (USDT) still holds the largest share of the stablecoin market, Dai and USDC have also seen real growth in 2020.
Among them, Tether (USDT), a stable currency linked 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 for the recent rebound of Bitcoin.
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The market value of USDT has increased by nearly 4 times this year
Paolo Ardoino, the chief technology officer of Bitfinex and Tether, recently stated on his Twitter that the supply of USDT increased by 1 billion in 9 days, setting the second fastest expansion rate in its history. The fastest ever record was set on September 4, 2020, when the circulating supply of USDT was increased by 1 billion in 8 days.
According to CoinMarketCap data, since the beginning of 2020, Tether's market value has increased by nearly 4 times. Based on the current circulating supply, Tether's market capitalization ranks fourth among all cryptocurrencies.
In 2019, a Bloomberg report stated that Tether’s USDT is not fully pegged to the U.S. dollar, but rather only 74% of the circulating supply is backed by cash and short-term securities.
Tether is also run by the same management group as Bitfinex, one of the world's largest cryptocurrency exchanges. Tether and Bitinex have been accused of manipulating the 2017 bull market, although proving such claims is difficult due to the complexities of the decentralized cryptocurrency market.
Legal experts told Cointelegraph earlier this year that the extent 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.
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Why are fiat stablecoins favored by the market
However, the growth of stablecoins has also coincided with countries starting to research their own CBDCs. As calls for the tokenization of traditional assets continue, newcomers to the stablecoin market such as XSDG are bound to become the new normal.
As volatility increases, more developers will keep a close eye on what is happening among stablecoins to create volatility-mitigating financial innovations. 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 they are themselves anchored to.
From the idea of the first stablecoin in 2012 to the Mastercoin project's proposal to bundle cryptocurrencies with traditional assets to mitigate price volatility, developers have become accustomed to using the U.S. dollar as an asset to act as a stabilizer.
Currently, developers are experimenting with other stable assets such as gold, other fiat currencies, and even cryptocurrencies.
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Behind the popularity of the stablecoin market
In the bull market of digital currency, traditional technology financial companies are also paying more attention to stable currency. Many companies are planning to launch their own stablecoins in 2021.
Credit card issuing giant VISA intends to connect their global payment network with Circle International Finance Corporation’s stablecoin USDC issued 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 begin to use USDC as the currency for payment, which also means that VISA’s 60 million merchants will be able to enter digital through USDC In the world of money.
On December 1, the Libra Association under Facebook, the world's largest social media giant, also announced that it will change the name of the stablecoin project Libra they developed to Diem, and will launch a stablecoin anchored to the US dollar in January 2021.
In addition, there is a Wall Street giant, a listed company on Nasdaq, and an international group called ZK Internaitonal is also thinking about stable coins. Last week, it revealed that it intends to provide funds for its subsidiary xSigma Lab to enter the DEFI field to create xSigma Defi The project, which is aimed at the stablecoin decentralized exchange.
Although there are still many problems with stablecoins that people criticize, voices of various disputes are endless. However, its market position has increasingly attracted the attention of governments of various countries, and relevant legislation on stablecoins is also under discussion.
A few days ago, members of the U.S. Congress proposed a new bill that may implement comprehensive regulation of all stablecoins. If passed, any stablecoin-related services would have to be approved by multiple government agencies before proceeding.
Dubbed the Stablecoin Act, the bill seeks to "protect consumers from the risks posed by emerging digital payment instruments, such as Facebook's Libra and other stablecoins.
Tether (USDT)
The main sponsor of the bill, 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. Said it was "to prevent cryptocurrency providers from repeating the criminal activities of traditional large banks against low- and middle-income residents."
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What are fiat stablecoins?
USDC
The stablecoins pegged to the USD are:
Like all other stablecoins, Tether aims to allow investors to use the dollar-pegged cryptocurrency to store profits from crypto transactions. Quoting Tether's official website: "Each USDT is always linked 1:1 to the traditional assets we hold in the reserve." This means that for every USDT issued, there will be a corresponding USDT in the company's account. $1 reserve. Currently, Tether is the most popular stablecoin with a market cap of over $15 billion and a daily trading volume of over $40 billion, according to Coinmarketcap.
PAX
Although Tether’s issuing company claims its tokens are 100% backed by liquid reserves, multiple parties have challenged the company’s claims in the past. But despite the controversy, the number of USDT in circulation recently increased to $15 billion from just over $4 billion in early 2020. Most experts believe that DeFi has made a huge contribution to the large-scale minting of USDT.
Additionally, USDT’s dominance has grown rapidly, allowing the coin to overtake payment platforms such as Bitcoin and PayPal in terms of daily transfer volume, with figures exceeding $3.5 billion. As gas fees on the Ethereum network continue to rise, Tether now plans to migrate the majority of its supply to a faster network.
BUSD
USDC was issued in 2018 by Circle, a blockchain-focused financial service provider, and is a stablecoin pegged 1:1 to the U.S. dollar. As far as stablecoin transparency is concerned, Circle claims on its website that USDC reserves are audited monthly by top accounting services and made available to the public.
Like Tether, USDC is growing rapidly, with issuance increasing by more than $1.8 billion in the past six months. Just recently, Center (a consortium formed by Circle and Coinbase responsible for the development of USDC’s governing body) announced the expansion of USDC from Ethereum to other blockchains. The move aims to ensure that USDC remains flexible enough to handle the large-scale financial innovations emerging in DeFi projects.
According to its website, Paxos, the company behind the PAX Standard stablecoin, says its stablecoin is the most liquid and highly regulated in the world. PAX is listed on more than 150 exchanges, with a daily trading volume of over $100 million and a total of $2 billion in PAX coins in circulation.
TUSD
Like its counterparts, PAX is packaged as a digital dollar that can be used to quickly move funds around the world anytime, anywhere. The stablecoin is built on ethereum's ERC-20 protocol, and client funds are held in segregated accounts insured by the Federal Deposit Insurance Corporation.
Binance USD (BUSD) is a USD-pegged stablecoin launched in partnership between 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. As a result, other financial institutions in the New York area can host BUSD without prior custody permission from NYDFS.
In a bid to establish itself as the stablecoin of choice 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 stablecoins with the fastest growth rate. Its market value has grown from around 20 million at the beginning of the year to more than $500 million at present.
Tether has been criticized for its centralization and lack of transparency, while TrueUSD (TUSD) claims to do the opposite. TUSD is a US dollar-pegged stablecoin 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.
XSDG
Even the TUSD team does not have access to escrow accounts, as instead of the management team, smart contracts are in place to help maintain a 1:1 peg between USD and TUSD coins.
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 all launched in 2019 and are mostly actively traded on Uniswap, a decentralized exchange that hosts various DeFi protocols.
Saga (SGA)
Projects that anchor other national currencies include:
On Oct. 5, Singapore-based payments firm Xfers launched the Singapore dollar-pegged XSGD stablecoin. As the first Singapore dollar-denominated token, the developers of XSDG expect the token will provide businesses and individuals with a way to gain exposure to the cryptocurrency industry.
EURS
To ensure easy access for users, tokens can be freely withdrawn and traded even with non-custodial wallets. Also, given that the stablecoin claims to be compliant with the Financial Action Task Force (FATF) travel rule, financial institutions could also use it for cross-border remittances. Like most stablecoins, the team behind XSGD is driving adoption of the token in the DeFi ecosystem, and the token is currently available on Ziliswap as an ERC-20 token.
“The time has come for stablecoins pegged to other national currencies, such as the Singapore dollar,” said Aymeric Salley, head of the project, in an interview with Cointelegraph.
Monerium
U.K.-based blockchain firm Saga launched an alternative to Facebook's stablecoin Libra in late 2019. Similar to Libra, SGA keeps its value stable by pegging it to a basket of fiat currencies. Saga differs from the Libra project in that the value of the SGA token is tied to bank deposits in the International Monetary Fund's Special Drawing Rights. The IMF's SDR is a basket of assets that is weighted by the U.S. dollar as well as the euro, Chinese yuan, pound sterling and Japanese yen.
Additionally, Saga will not profit from the stablecoin, although it will act as the primary issuer of the token. Saga founder Ido Sadeh Man told CNBC in an interview that the stablecoin aims to serve as a complementary currency for cross-border payments as consumers use it to pay on e-commerce platforms such as Amazon. Saga is currently unavailable in the US and Israel due to lack of regulatory clarity.
