December 4, 2022

The Current State Of The Stablecoin Market

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Stablecoins are an essential and unique part of the crypto market, giving investors and traders a "Safe Place" within the market to store wealth. 2022 has certainly been an eventful year for stablecoins with some newcomers entering the market, as well as some giants leaving. In this article we are going to take a look at where we are in the stablecoin market and some of the major developments taking place in the space including Ripple’s new found stablecoin ambition.

Trading Volume

Despite issues surrounding UST and FTX, the stablecoin market is growing rapidly. In Q3, stablecoin trading volume reached an all time high of $1 trillion which just shows that the public still has trust in the use and storage capabilities that stablecoins offer. To put his number into perspective, this is a 4X in trading volume since 2020 which had a trading volume of around $250 billion.

Market Capitalization

The top 10 largest stablecoins create an accumulative market cap of around $180 billion which is almost of the total crypto market capitalization as a whole. The gain that stablecoins are taking over the market is only increasing, especially because market sentiment is mostly negative at the moment which results in investors being more likely to hold a more stable currency to try to protect their wealth. On the other hand, it is predicted that when the next bull run starts, stablecoins may lose some traction compared to the entire market due to more trust being restored into the market.

The Top Dogs

Here are some performance insights of the top 3 stablecoins since 2020:

These insights show that investors are definitely looking at alternative stablecoins as a store of value, almost similar to how investors are increasing their altcoin holding over Bitcoin. Among many reasons, the general distrust on larger centralised organisations with users not wanting to have all their eggs in one basket is the primary force behind the adoption.

Newcomers To The Stablecoin Market

Ripple - Ripple announced that it would become a stablecoin issuer with the incorporation of its XRP Ledger. This will result in developers being able to use their fast, low cost and scalable blockchain as a base for a stablecoins.

The blockchain aims to offer:

Ripple stated that they believe stablecoins will continue to grow in popularity and as a result they wanted to provide a blockchain that can help facilitate this growth in the long run.

Cardano - Cardano announced it was partnering with COTI (Layer 1 protocol) to launch an over-collateralized algorithmic stablecoin, Djed. Djed is set to go live in Q1 2023 and will be backed by both ADA and $SHEN which it will use as its reserve token.

The collateral will be stored in a reserve and will form a preventative measure to ensure that the stablecoin doesn't lose its peg.

Tether Slashing Paper Holdings To 0

One of the biggest announcements within the stablecoin market came in October when Tether announced that it was slashing its paper holdings and replacing them with U.S. treasury bills. A treasury bill is a short term debt obligation that the treasury backs with a lifespan of a year or less. The advantage to Tether and its investors is that it provides greater security of capital for investors as there is a more secure backing of the stablecoin.

Tether has seen some backlash from some saying that this makes the token even more centralized.

This decision leads us to think. Could we see more stablecoins using alternatives to fiat as a backing? Tether is certainly leading the way in this exploration and only time will tell whether it works out to be successful or not.

To conclude

Stablecoins have definitely had a rollercoaster of a year in the media, but one thing is for certain, the technology advancements and safety within the space are only getting better and Luna's collapse has only pushed other organizations to further their security and prevention measures. Stablecoins are here to stay and during bear markets such as the one we are experiencing, stablecoins are seen as one of the safest methods at achieving guaranteed returns in the market.

We recommend that you diversify your stablecoin holdings to prevent total financial loss incase of unfortunate events taking place.

We hope that you found this information useful.