The DeFi sector has been exploding in 2020, but what’s underpinning this frenzy is the stablecoins sector that continues to climb to new heights.
In Q2 2020, the monetary base of stablecoins grew by a whopping $3.8 billion, much faster than Q1 2020s $2.4 billion. This brings the total market of stablecoin to over $12 billion.
Without any doubt, USDT remains the biggest contributor, adding $3.5 billion in market cap. Tether has also been the first stablecoin to exceed a $10 billion market cap.
However, the ”fastest-growing stablecoin on a relative basis” was popular DeFi project Synthetix’s sUSD. The stablecoin benefited from the recent growth of DeFi and, of course Synthetix itself, and “a low starting base,” according to a report by Messari.
But the absolute “fastest-growing” stablecoin was Binance’s BUSD, which began trading in September last year and grew $143 million, more than USDT and USDC, largely due to its ongoing fee promotion program.
What’s behind this Massive Growth?
The most dominant use case for these fiat-pegged digital currencies remains the inter-exchange settlement, a better means to move the fiat, more specifically, dollars around the world.
Given that unlike traditional payment rails, the crypto market works 24/7, it makes sense as it allows users to take advantage of the market conditions much faster.
Not only the “flight to cash spurred by the initial financial markets turmoil” caused by the coronavirus pandemic drove stablecoin growth, but in some respects, these fiat-pegged digital currencies “offer a superior payments and savings solution.”
And of course, the DeFi craze only helped stablecoins' to grow faster. Stablecoins are the center of DeFi phenomena, which has over $3 billion locked up, is recording huge volume sometimes $100 million, outstanding loans which in case of Compound went up to $800 million, and there has been a significant increase in the price of DeFi tokens.
USDT & Ethereum to Surpass Bitcoin
As we reported, Tether has been recording more than double the trading volume seen by bitcoin, for the past few months as the world's leading cryptocurrency remains stuck in a tight range, almost acting like a stablecoin itself. So, it is no surprise that “USDT alone may very soon surpass Bitcoin as the dominant currency on public blockchains.”
Overall, stablecoins continued their dominance as the leading currency on public blockchains. In Q2 2020, public blockchains settled $144 billion in stablecoin transactions, putting the first-half total to $245 billion.
Stablecoins have been regularly accounting for over 40% of the combined daily settlement of Bitcoin and Ethereum “as the dollarization of public chains continues.”
Ethereum, however, remains the dominant settlement layer in the crypto space, which is also the one on which the DeFi sector is getting built on. Stablecoins helped Ethereum “blew” past Bitcoin in Q2 of 2020 in daily settlement value after reaching parity in Q1 2020.
Ethereum actually accounts for more than 65% of all stablecoins issued and over 85% of its transaction value.
Some enthusiasts believe this would push ETH prices higher, but currently, it’s ETH fees that are surging, median fees now approaching $0.40 — the highest since mid-2018.
Although a healthy sign as it signifies high demand and creates more revenue for miners, high fees also make it expensive to send transactions that could push users to alternatives.
Already, the amount of unique activity ETH addresses decreased, despite an increase in transactions (7-day average), noted Coin Metrics.