The “stablecoin war” in full swing

Get ready, the stablecoin wars have begun.

Stablecoins have become one of the largest and fastest-growing segments of the Crypto industry, with a combined market cap of over $180 billion — a figure that has grown 109% over the past year and 1748% over the past two years .

The "stablecoin war" in full swing

Above: Supply growth across major stablecoins. Source: The Block

In this area of ​​the cryptoeconomy , the potential market for stablecoins is in the trillions of dollars, and as a form of “ money , ” these assets benefit from massive network effects from liquidity . Because of this, early stablecoin winners can easily become entrenched incumbents.

This of course begs the question: who is winning this stablecoin war? Which stablecoins are growing the fastest? Among the various use cases on-chain, which stablecoins are the most liquid and adopted?

Let’s find out.

01. Key players

Before digging into some data to understand the current state of the stablecoin wars, let’s briefly look at the 7 major stablecoins/currency issuers so we can get an idea of ​​how these stablecoins work and some of the drivers behind their success Have a high-level understanding.

For our purposes, we’ll talk about USDC USDT BUSD UST DAI FRAX FEI , and OHM (though OHM is not a stablecoin, but a “non-pegged currency”).

While these 7 stablecoins are not necessarily the largest by market cap, they are (for reasons explained below) in the best position to maintain or grow market share and are one of the most competitive verticals in the DeFi industry .

1. Centralized stablecoins: USDC, USDT and BUSD

USDC, USDT and BUSD are currently the three largest centralized stablecoins . All three are issued by off-chain entities and claim to be backed 1:1 by fiat collateral (i.e. “real” US dollars).

While the design of this stablecoin is more opaque and fully centralized , it has proven to be the most scalable of the stablecoins as the three stablecoins have a combined circulating supply of $ 144.2 billion , accounting for 80% of the entire industry . Although these three stablecoins cannot be audited on-chain, they all issue their own proofs of reserves to varying degrees. For example, USDC issuer Circle and USDT issuer Tether hold low-risk, short-term assets (such as commercial paper), in order to generate income for themselves.

In particular, the deep liquidity of USDT and USDC enables these two stablecoins to establish a huge network effect, and USDC is the most widely adopted stablecoin on the chain (more on this later).

2. Decentralized stablecoins: UST, DAI, FRAX, FEI and OHM

1) UST

UST is a decentralized algorithmic stablecoin pegged to the U.S. dollar.

UST employs a simple minting and burning mechanism to maintain stability : to mint UST, users must destroy an equal value of LUNA (the native asset of the Terra blockchain); similarly, users can redeem their UST by destroying an equal value of UST LUNA.

As we have seen, UST is not backed by any external collateral – instead, it relies on arbitrage to maintain its stability : when UST trades above its peg (i.e. $1), market participants have an incentive By minting new UST to expand its supply and reduce its price, and vice versa.

However, Terra recently raised a reserve fund of BTC and Avalanche’s native token AVAX (total value around $ 1.75 billion ) through the Luna Foundation Guard (LFG) to help support the UST peg, giving the stablecoin 9.3% of these backed by reserves.

Although this design has its own set of significant risks, it has allowed UST to rapidly expand its circulating supply to over $18.65 billion , the third largest of all stablecoins, and already has more supply than its closest competitor, DAI more than doubled.

2) DAI

DAI is a decentralized, dollar-pegged stablecoin issued by Maker DAO. DAI is based on an over-collateralization mechanism , and users can deposit different forms of collateral (such as ETH) into the vault to mint the DAI stablecoin. Users must keep their collateralized positions overcollateralized because collateral can be liquidated when it falls below a set collateralization ratio (the collateralization ratio varies by collateral asset).

DAI is one of the oldest and most proven stablecoins in the DeFi space, and Maker is known for its strong, decentralized governance system and best-in-class risk management policies. This, along with the extensive integration of a large number of DeFi protocols, has grown DAI’s market cap to over $ 8.13 billion , making it the fifth-largest of all stablecoins and the second-largest of decentralized stablecoins.


FRAX is a decentralized, dollar-pegged stablecoin. As the name suggests, the stablecoin is a partially collateralized algorithmic stablecoin , and the amount of collateral in the system (Collateralization Ratio (CR)) is dynamically changed and set by the market based on the supply and demand of FRAX. Similar to UST, a portion of the FRAX stablecoin supply is uncollateralized and held stable through the FXS token (the protocol’s seigniorage and governance token), which is maintained when new FRAX is created and minted to meet redemption demand will be destroyed.

Frax also uses what’s known as an ” algorithmic market maker ” (AMO) to set monetary policy. These AMOs allow protocols to deploy FRAX and its reserves into various DeFi protocols such as Curve, Uniswap, and Aave to generate revenue and help achieve strategic goals.

FRAX’s “best of both worlds” design, coupled with the use of AMO and many partners, has expanded the stablecoin’s supply to more than $2.6 billion , ranking 7th in market capitalization among all stablecoins, and its growth rate over the past 6 months is in this area. It ranks second among the seven stablecoins.

4) FEI

FEI is also a decentralized stablecoin, pegged to the US dollar and issued by Fei Protocol. The stablecoin is fully collateralized, and users can mint new FEI by storing various assets, which can be redeemed 1:1 at any time.

FEI only accepts decentralized collateral, with ETH and LUSD being the vast majority of its backing assets.

FEI helped popularize the concept of ” Protocol Controlled Value ” (PCV) as its reserves are managed by TRIBE token holders through decentralized governance (and in the future through a managed Balancer pool) . This PCV is deployed into various DeFi protocols to earn yield, while the protocol itself can use the excess reserves to mint FEI (i.e. Protocol Owned FEI (POF)) to provide liquidity to its DeFi venues of choice.

While FEI is “just” the 11th largest stablecoin, with a market cap of $566 million , the protocol has $878 million in PCV and POF combined. This, combined with the synergy of their merger with Rari Capital (the team behind permissionless money market protocol Fuse) to form the Tribe DAO, should give Fei the resources they need to grow their market share.

5) OHM

OHM is a fully collateralized, free-floating currency issued by Olympus DAO . This means that OHM is not a stablecoin, but allows its price to be determined by the open market.

Olympus uses the bond mechanism and pledge mechanism to accumulate assets for its treasury and issue OHM. As far as the bond mechanism is concerned, the protocol sells discounted OHMs (granted within days) in exchange for various assets such as stablecoins or LP tokens paired with OHMs. As far as the staking mechanism is concerned, OHM holders can stake their tokens to obtain newly issued OHMs, which helps to minimize the dilution brought about by the bond mechanism.

These mechanisms have a significant impact on its price, and the model pioneered by Olympus has allowed the protocol to have 99.2% of OHM liquidity and has allowed it to accumulate over $ 337 million in coffers . Like Fei and FRAX, holders of OHM can control these reserves for deployment in different venues to generate income or further strategic goals.

The funding will allow Olympus to continue to have a significant presence in the stablecoin space, helping propel its market cap past the current $368 million mark in the long run.

The chart below shows the market capitalization, market share, and market capitalization growth of these seven stablecoins over the past 3 months and the past 6 months:

The "stablecoin war" in full swing

As shown in the table above, UST and FRAX have been the fastest growing over the past six months, with their supply increasing by 547% and 300%, respectively, over the past two quarters. UST has continued to expand at the fastest pace over the past three months, with a 65% increase in market value. This increases UST’s market share of the total stablecoin supply from 2.08% in November 2021 to 10.34%, nearly 5x.

The "stablecoin war" in full swing

Additionally, the above-average growth rates of UST and FRAX relative to the overall stablecoin market are another example of how stablecoins with algorithmic components can scale due to more capital efficiency . By cooperating with each other (such as with 4pool on Curve), the two stablecoins will likely continue to see huge growth. 4pool is a stablecoin pool composed of UST, Frax, USDC and USDT created by Frax and Terra on Curve, and aims to be the base trading pair on Curve.

Stablecoin Market Value Growth Ranking

  • Gold: UST
  • Silver: FRAX
  • Bronze: USDC

02. Stablecoin Battleground

Now that we’ve covered the major players in this stablecoin war, let’s take a look at where they are on the front lines of the competition and see where they each stand.

To do this, we will compare the 8 aforementioned assets (USDC, USDT, BUSD, UST, DAI, FRAX, FEI, and OHM) as well as MIM and LUSD (the 6th and 12th largest stablecoins by market cap, respectively).

To assess the adoption and usage of each stablecoin, we will examine the composition of liquidity and deposits on DEXs (decentralized exchanges), money markets, and cross-chain bridges. Additionally, we will examine stablecoin holdings on the DAO’s balance sheet and see which stablecoins are used to back other stablecoins to assess their desirability and adoption as a reserve asset.

1. Stablecoin liquidity in DEX

DEX (Decentralized Exchange) is the core of DeFi, facilitating asset exchange and liquidity flow throughout the DeFi ecosystem. As the insane popularity of the Curve wars has shown, DEXs are a key battleground for stablecoins, as the deep liquidity of DEXs helps to strengthen stablecoin pegs and cement stablecoins as a popular trading pair for other assets.

Let’s take a look at the composition of stablecoin liquidity on the top five DEXs (i.e. Curve , Uniswap , Balancer , SushiSwap , and Bancor ) with the highest TVL (total value locked) on Ethereum , and see the difference between these 10 stablecoins competitive landscape.

The "stablecoin war" in full swing

Based on the above table, we can see that USDC has the strongest liquidity at $2.32 billion, accounting for 23.3% of the total liquidity of the five DEX stablecoins of $10 billion, followed by FRAX (19.6%) and DAI (18.4 %) %), at $1.96 billion and $1.83 billion, respectively.

The "stablecoin war" in full swing

Digging into the composition of the stablecoin liquidity of each exchange, we can see that USDC is by far the most liquid stablecoin on Uniswap and Balancer , accounting for 39.7% and 45.8% of the two DEXs, respectively stablecoin liquidity share. As shown in FIG.

Unsurprisingly, Curve has been the most competitive stablecoin battleground among DEXs , with no stablecoin protocol accounting for more than a quarter of the exchange’s stablecoin liquidity.

FRAX is the most liquid stablecoin on the Curve platform, which may come as a surprise, but for a reason, as the FRAX protocol is the largest holder of CVX (CVX is Convex Finance’s governance token, which Convex controls Most of the CRV tokens, and thus also control the flow of CRV token rewards on Curve), and paid CVX holders tens of millions of dollars in bribes to direct further liquidity to the FRAX matchmaking pool on Curve.

On-chain liquidity rankings of stablecoins:

  • Gold: USDC
  • Silver: FRAX
  • Bronze Medal: DAI

2. Stablecoin deposits in DeFi money markets

Like DEXs, DeFi money markets (such as Aave, Compound, etc.) are one of the most critical components of the on-chain financial system, helping to enable Crypto lending, pricing risk, and (sometimes) inhibiting DeFi Degens (gambler-style trading ) er) an insatiable thirst for leverage.

Let’s take a look at deposits on the four largest money markets on Ethereum, Aave Compound Fuse , and Euler , in order to see how much each stablecoin has deposited in these money markets relative to other stablecoins.

The "stablecoin war" in full swing

From the table above, we can see that USDC is the stablecoin with the most deposits in these four currency markets , with more than $4.82 billion, accounting for 50.7% of the total stablecoin deposits of $9.51 billion across the four platforms DAI and USDT ranked second and third with deposits of $2.32 billion (24.4%) and $2.05 billion (21.6%), respectively.

The "stablecoin war" in full swing

Fuse has proven to be the most competitive market among stablecoins, as FEI, FRAX, and OHM have the largest share of stablecoin deposits on the platform. This is not particularly surprising given the nature of the protocol, as there is a large number of independent and specialized pools between Fei and Fuse, and a strong connection between the two, as both projects are based on Tribe DAO’s under the umbrella.

The ranking of stablecoin deposits in the currency market:

  • Gold: USDC
  • Silver medal: DAI
  • Bronze: USDT

3. Stablecoin liquidity and locked value in cross-chain bridges

Blockchain “bridges” are fast becoming one of the most important pieces of infrastructure in the multi-chain cryptoeconomy. While each ” bridge ” has its own unique risk profile and trust assumptions, with the rise of alternative L1 chains and L2 networks, ” bridges ” provide users with a quick, relatively straightforward way to move between networks Transfer assets, and the popularity of ” bridges ” has exploded.

With that in mind, let’s see which stablecoins have the most liquidity and/or the most deposits on the five popular ” bridge ” protocols ( Synapse , Wormhole , Stargate , Multichain , and Hop ) so we can Learn which stablecoins are the most liquid and used in these multi-chain economies.

The "stablecoin war" in full swing

Data source: DeepDAO

Based on the above table, it is somewhat unexpected that MIM is the most popular stablecoin among these five “ bridges ” followed by UST and USDC with $1.07 billion, $1.04 billion and $1.03 billion respectively USD liquidity/locked value.

The "stablecoin war" in full swing

Data source: DeepDAO

However, a closer look reveals that these numbers are a bit distorted, as both MIM and UST are backed by only one of these five ” bridges ” : MIN is only backed by Multichain , and UST is only backed by Wormhole . Additionally, we can see that while USDC ranks third overall in terms of liquidity/value locked, it has the largest market share on Stargate, Synapse and Hop, and the second largest market share on Wormhole and Multichain.

List of stablecoins in multiple chains:

  • Gold: MIM
  • Silver: UST
  • Bronze: USDC

4. Stablecoin holdings in the DAO vault

Another important use case for measuring stablecoin adoption is its use as a vault asset . While many protocols have the bulk of their balance sheets in their native governance tokens, DAOs (Decentralized Autonomous Organizations) are increasingly spreading their treasury holdings into less volatile assets .

Let’s see how these 10 stablecoins perform in this regard by looking at stablecoin holdings in the DAO vault .

The "stablecoin war" in full swing

As we can see from the table above, USDC accounts for 49.5% of the total value of stablecoin holdings tracked by these DAOs , or $477.5 million in USDC stablecoins on their balance sheets. USDC is also the stablecoin held by the largest number of DAOs, with as many as 92 DAOs holding USDC assets in their vaults. DAI and USDT came in second and third with 22.7% and 16.7% shares, respectively.

Among assets other than USDC, DAI or USDT, OHM dominates with a combined value of $47.5 million on the balance sheets of the three DAOs, while FEI is held by seven DAOs.

List of stablecoin holdings in the DAO vault:

  • Gold: USDC
  • Silver medal: DAI
  • Bronze: USDT

5. Currency reserves

The last key function of stablecoins is as a reserve for other currencies . As stablecoins are increasingly tested and more widely used as reserve currencies to their competitors, their lack of volatility increases the ease of risk management, while also helping to align incentives to encourage stability Cooperation between coin issuers.

With that in mind, let’s take a look at the 10 we listed above by looking at the reserves and collateral of 8 decentralized stablecoins DAI, FRAX, FEI, OHM, alUSD, MAI, agEUR, and UST Here’s how each stablecoin is doing in this regard, and see how popular each stablecoin is as a reserve for other stablecoins .

The "stablecoin war" in full swing

From the table above, we can see that USDC is the most popular reserve for other stablecoins , accounting for 83.7% of the total stablecoins that serve as reserves . Next in line are DAI, UST and LUSD with 8.1%, 5.7% and 1.4% respectively.

Reserve leaderboard:

  • Gold: USDC
  • Silver medal: DAI
  • Bronze: UST

03. The stablecoin war has arrived

Current Winner: USDC

USDC is the most liquid stablecoin on DEX, the stablecoin with the highest deposit volume in the DeFi currency market, the third most liquid stablecoin on the cross-chain “bridge”, and the most widely used stablecoin in the DAO vault , and the most popular stablecoin among other stablecoin reserves. It is clear that USDC is the most used on-chain stablecoin in the Crypto space despite being the second largest stablecoin .

While other smaller stablecoin players have been able to gain market share in a single battleground (eg FRAX is the most liquid stablecoin on the Curve platform, FEI is the stablecoin with the highest deposit volume on the Fuse currency market, UST is the Wormhole cross-chain bridge The only stablecoin supported), but USDC is currently the clear “winner” in the stablecoin wars .

However, there is hope for those who support decentralized stablecoins. Two decentralized alternatives, UST and FRAX, are currently growing much faster than USDC despite their smaller market caps .

Not to mention the arrival of other new challengers, such as algorithmic stablecoins on L1 chains like Near’s USN and Tron’s USDD, and CPI (Consumer Price Index) anchored coins like Frax’s FPI and Volt Protocol’s Volt Stablecoins, they may shake up the stablecoin competitive landscape.

While USDC may have an early lead, we are just beginning a long stablecoin war.

This article represents the views of the original author only and does not constitute any investment opinion or recommendation.

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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