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While NFT, DeFi and DAO have taken center stage in cryptocurrencies over the past few years, stablecoins have been quietly growing in the background.
Stablecoins are now one of the largest and fastest growing tracks in the cryptocurrency industry with a total market cap of over $180 billion, a figure that has grown by approximately 109% in the last 2021 and 1748% in the last 2 years.
While the space was initially dominated by major players such as USDT, USDC and DAI, there are new competitors entering the market and making a name for themselves - protocols such as FEI, UST, FRAX, etc. all have their own unique designs and different issuance strategies
The crypto industry's stablecoin circuit is so risky, with a potential market size in the trillions of dollars and as a form of currency, these stablecoin assets benefit from the huge network effects of liquidity that early winners can easily establish themselves as leaders.
And now that competition is getting fierce, with every project trying to become the reserve stablecoin for the multi-trillion dollar crypto economy, it certainly begs the question: who is winning the stablecoin wars? Which ones are growing the fastest? Which ones are the most liquid and are being used for various use cases on the chain?
Let's take a look and find the answers by analyzing the on-chain data.
"The "Seeders Before we dive into the on-chain data to understand the state of the stablecoin wars, let's briefly introduce the 7 major stablecoin/currency issuers so we can get a full picture of how they work, and some of the drivers behind their success.
For our purposes, we will cover USDC, USDT, BUSD, UST, DAI, FRAX, FEI, and OHM (although it is not a stablecoin, but a non-anchored currency).
While these 7 stablecoin projects are not necessarily the largest in terms of market cap, they are (for the reasons explained below) in the best position to maintain or expand their market share and are in one of the most competitive verticals for DeFi.
Centralized Stablecoins USDC, USDT, and BUSD
USDC, USDT, and BUSD are the three largest centralized stablecoins. Issued by off-chain entities, all three are (allegedly) backed 1:1 by legal (i.e. 'real' USD) collateral.
This leads to opacity and complete centralization, but this design has also proven to be the most scalable solution among stablecoins, with the combined circulation of the three at $144.2 billion - about 80% of the entire industry.
While these three corporate entities cannot be audited on-chain, each has released proof of their reserves to varying degrees, with USDC, Circle, the issuer of USDT, and Tether holding low-risk, short-term assets such as commercial paper in order to generate revenue for themselves.
The deep liquidity of USDT and USDC in particular allows both to build substantial network effects, with the latter also being the most widely adopted stablecoin on the chain (more on this later).
Decentralized Stablecoins (UST, DAI, FRAX, FEI, OHM) UST
UST is a decentralized, algorithmic, stablecoin pegged to the US dollar.
UST utilizes a simple minting and destruction mechanism to maintain stability. To mint UST, users must burn LUNA (a native asset of the Terra blockchain, where the stablecoin UST is issued) and burn an equal amount of LUNA as the number of UST units they wish to mint (i.e. 1:1).
Likewise, users can exchange their LUNA by burning an equal amount of UST.
As we have seen, the UST is not backed by any exogenous collateral. Instead, it relies on arbitrage to maintain its stability, and when USTs trade above the pegged rate, market participants are incentivized to expand supply by minting new USTs to lower UST prices, and vice versa.
However, Terra recently raised reserve funds through Luna Foundation Guard (LFG) totaling approximately $1.75 billion including BTC and the Avalanche native token AVAX to help support the UST to achieve the peg, which gives the UST stablecoin approximately 9.3% of the reserve assets backed at the current price.
While this design comes with its own set of significant risks, it has enabled UST to rapidly scale to a circulating supply of over $18.65 billion, ranking it #3 among all stablecoins and more than twice the size of its next closest decentralized competitor, DAI.
DAI
DAI is MakerDAO's decentralized, USD-pegged stablecoin. dai is over-collateralized, allowing users to deposit different forms of collateral (e.g. ETH) into a vault to mint stablecoins. Users must maintain their position over collateral because the protocol can liquidate the user's collateral assets when it falls below a set collateral ratio (which varies by asset).
DAI is one of DeFi's oldest and most tried and tested stablecoins. Maker is known for its strong decentralized governance system and best-in-class risk management policies, which, combined with the extensive integration of DAI and various DeFi protocols, has grown DAI's market cap to over $8.13 billion, ranking it 2nd among all stablecoins and 2nd among decentralized stablecoins.
FRAX
FRAX is a decentralized, USD-pegged stablecoin. As the name implies, the FRAX stablecoin is both partially collateralized and algorithmic.
The amount of collateral in the system is called the Collateral Ratio (CR) and is dynamically changed and set by the market based on the supply and demand of FRAX. Similar to the UST, a portion of the FRAX stable coin (i.e. 1-CR) is uncollateralized, maintaining stability through FXS (the protocol's mint tax and governance tokens), which are burned when a new FRAX is created and used for service redemptions, and the corresponding FXS.
FRAX also uses so-called Algorithmic Market Operations (AMOs) to set monetary policy. These AMOs allow agreements to deploy FRAX and its reserves into various DeFi protocols such as Curve, Uniswap and Aave to generate revenue and help achieve strategic goals.
The "best of both worlds" design of FRAX and the use of AMOs and numerous partners has expanded the supply of stablecoins to over $2.6 billion, ranking 7th among all stablecoins and the 2nd highest growth rate of the 7 stablecoins listed in this section over the past 6 months.
FEI
FEI is a decentralized, U.S. dollar-pegged stablecoin issued under the Fei protocol. FEI is a fully asset-backed stablecoin that allows users to mint new FEI by depositing a variety of assets that can be redeemed at any time at a 1:1 ratio.
FEI accepts only decentralized collateral, with ETH and LUSD making up the vast majority of its backing.
FEI has helped popularize the concept of Protocol Controlled Value (PCV) as its reserve assets are managed by TRIBE token holders through decentralized governance (and in the future through a hosted Balancer pool). This PCV is deployed into various DeFi protocols to earn revenue, while the protocols themselves can mint FEI (POF) against excess reserves to provide liquidity to the venue of their choice.
While FEI is "only" the 11th largest stablecoin with a market cap of $566 million, the protocol has a maximum asset value of $878 million considering the total value of the PCV and POF.
This, combined with the synergies of their merger with Rari Capital (the team behind the unlicensed money market protocol Fuse) to form Tribe DAO, should provide FEI with the resources needed to expand its market share.
OHM
OHM is a fully asset-backed, 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 a bond and pledge mechanism to accumulate assets for its vault and issue OHM. for the former, the protocol sells discounted OHM that can be exercised within a few days in exchange for various assets, such as stablecoins or LP tokens paired with OHM; for the latter, OHM holders can pledge their tokens to obtain newly issued OHM, which helps minimize bond dilution.
While these adjustments had a significant impact on their price, the model pioneered by Olympus enabled the agreement to have 99.2% OHM liquidity and allowed them to accumulate over $337 million worth of vault value.
As with Fei and FRAX, OHM holders can deploy these reserves to various DeFi protocols through governance decisions to generate revenue or for further strategic purposes.
This funding should also enable Olympus to continue to have a significant impact on the stablecoin industry, which in the long run will help drive its market cap beyond the current $368 million mark.
Notes on Stablecoin Market Capitalization, Market Share and Growth Rate
As mentioned 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.
Of these, UST continues to expand at the fastest rate over the past three months, with a 65% increase in market cap, which has resulted in UST's share of total stablecoin supply increasing nearly fivefold since November 2021, from 2.08% to 10.34%.
Furthermore, the above-average growth of UST and FRAX relative to the overall stablecoin market is an example of how - with greater capital efficiency - algorithmically designed stablecoins can scale more easily.
Also by partnering with each other, both may continue to achieve huge growth, such as with 4Pool: Frax and Terra have partnered to create a pool of UST, FRAX, USDC, and USDT on Curve, which they hope will become the base pair on DEX.
Growth rate ranking.
UST
FRAX
USDC
Battlefield Now that we know the main players in the stablecoin war, let's take a look at their competing fronts and see where each player stands individually.
To do this, we will compare the 8 assets discussed above (USDC, USDT, BUSD, UST, DAI, FRAX, FEI, and OHM) as well as MIM and LUSD (the 6th and 12th largest stablecoins by market cap).
To assess the adoption and usage of each stablecoin, we will examine the liquidity and deposit composition on decentralized exchanges, cryptocurrency markets, and cross-chain bridges.
In addition we will examine the stablecoin holdings on the DAO vault balance sheet and see which are most often used as backing for other stablecoins to assess their desirability and adoption rates as reserve assets.
While NFT, DeFi and DAO have taken center stage in cryptocurrencies over the past few years, stablecoins have been quietly growing in the background.
Stablecoins are now one of the largest and fastest growing tracks in the cryptocurrency industry with a total market cap of over $180 billion, a figure that has grown by approximately 109% in the last 2021 and 1748% in the last 2 years.
While the space was initially dominated by major players such as USDT, USDC and DAI, there are new competitors entering the market and making a name for themselves - protocols such as FEI, UST, FRAX, etc. all have their own unique designs and different issuance strategies
The crypto industry's stablecoin circuit is so risky, with a potential market size in the trillions of dollars and as a form of currency, these stablecoin assets benefit from the huge network effects of liquidity that early winners can easily establish themselves as leaders.
And now that competition is getting fierce, with every project trying to become the reserve stablecoin for the multi-trillion dollar crypto economy, it certainly begs the question: who is winning the stablecoin wars? Which ones are growing the fastest? Which ones are the most liquid and are being used for various use cases on the chain?
Let's take a look and find the answers by analyzing the on-chain data.
"The "Seeders Before we dive into the on-chain data to understand the state of the stablecoin wars, let's briefly introduce the 7 major stablecoin/currency issuers so we can get a full picture of how they work, and some of the drivers behind their success.
For our purposes, we will cover USDC, USDT, BUSD, UST, DAI, FRAX, FEI, and OHM (although it is not a stablecoin, but a non-anchored currency).
While these 7 stablecoin projects are not necessarily the largest in terms of market cap, they are (for the reasons explained below) in the best position to maintain or expand their market share and are in one of the most competitive verticals for DeFi.
Centralized Stablecoins USDC, USDT, and BUSD
USDC, USDT, and BUSD are the three largest centralized stablecoins. Issued by off-chain entities, all three are (allegedly) backed 1:1 by legal (i.e. 'real' USD) collateral.
This leads to opacity and complete centralization, but this design has also proven to be the most scalable solution among stablecoins, with the combined circulation of the three at $144.2 billion - about 80% of the entire industry.
While these three corporate entities cannot be audited on-chain, each has released proof of their reserves to varying degrees, with USDC, Circle, the issuer of USDT, and Tether holding low-risk, short-term assets such as commercial paper in order to generate revenue for themselves.
The deep liquidity of USDT and USDC in particular allows both to build substantial network effects, with the latter also being the most widely adopted stablecoin on the chain (more on this later).
Decentralized Stablecoins (UST, DAI, FRAX, FEI, OHM) UST
UST is a decentralized, algorithmic, stablecoin pegged to the US dollar.
UST utilizes a simple minting and destruction mechanism to maintain stability. To mint UST, users must burn LUNA (a native asset of the Terra blockchain, where the stablecoin UST is issued) and burn an equal amount of LUNA as the number of UST units they wish to mint (i.e. 1:1).
Likewise, users can exchange their LUNA by burning an equal amount of UST.
As we have seen, the UST is not backed by any exogenous collateral. Instead, it relies on arbitrage to maintain its stability, and when USTs trade above the pegged rate, market participants are incentivized to expand supply by minting new USTs to lower UST prices, and vice versa.
However, Terra recently raised reserve funds through Luna Foundation Guard (LFG) totaling approximately $1.75 billion including BTC and the Avalanche native token AVAX to help support the UST to achieve the peg, which gives the UST stablecoin approximately 9.3% of the reserve assets backed at the current price.
While this design comes with its own set of significant risks, it has enabled UST to rapidly scale to a circulating supply of over $18.65 billion, ranking it #3 among all stablecoins and more than twice the size of its next closest decentralized competitor, DAI.
DAI
DAI is MakerDAO's decentralized, USD-pegged stablecoin. dai is over-collateralized, allowing users to deposit different forms of collateral (e.g. ETH) into a vault to mint stablecoins. Users must maintain their position over collateral because the protocol can liquidate the user's collateral assets when it falls below a set collateral ratio (which varies by asset).
DAI is one of DeFi's oldest and most tried and tested stablecoins. Maker is known for its strong decentralized governance system and best-in-class risk management policies, which, combined with the extensive integration of DAI and various DeFi protocols, has grown DAI's market cap to over $8.13 billion, ranking it 2nd among all stablecoins and 2nd among decentralized stablecoins.
FRAX
FRAX is a decentralized, USD-pegged stablecoin. As the name implies, the FRAX stablecoin is both partially collateralized and algorithmic.
The amount of collateral in the system is called the Collateral Ratio (CR) and is dynamically changed and set by the market based on the supply and demand of FRAX. Similar to the UST, a portion of the FRAX stable coin (i.e. 1-CR) is uncollateralized, maintaining stability through FXS (the protocol's mint tax and governance tokens), which are burned when a new FRAX is created and used for service redemptions, and the corresponding FXS.
FRAX also uses so-called Algorithmic Market Operations (AMOs) to set monetary policy. These AMOs allow agreements to deploy FRAX and its reserves into various DeFi protocols such as Curve, Uniswap and Aave to generate revenue and help achieve strategic goals.
The "best of both worlds" design of FRAX and the use of AMOs and numerous partners has expanded the supply of stablecoins to over $2.6 billion, ranking 7th among all stablecoins and the 2nd highest growth rate of the 7 stablecoins listed in this section over the past 6 months.
FEI
FEI is a decentralized, U.S. dollar-pegged stablecoin issued under the Fei protocol. FEI is a fully asset-backed stablecoin that allows users to mint new FEI by depositing a variety of assets that can be redeemed at any time at a 1:1 ratio.
FEI accepts only decentralized collateral, with ETH and LUSD making up the vast majority of its backing.
FEI has helped popularize the concept of Protocol Controlled Value (PCV) as its reserve assets are managed by TRIBE token holders through decentralized governance (and in the future through a hosted Balancer pool). This PCV is deployed into various DeFi protocols to earn revenue, while the protocols themselves can mint FEI (POF) against excess reserves to provide liquidity to the venue of their choice.
While FEI is "only" the 11th largest stablecoin with a market cap of $566 million, the protocol has a maximum asset value of $878 million considering the total value of the PCV and POF.
This, combined with the synergies of their merger with Rari Capital (the team behind the unlicensed money market protocol Fuse) to form Tribe DAO, should provide FEI with the resources needed to expand its market share.
OHM
OHM is a fully asset-backed, 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 a bond and pledge mechanism to accumulate assets for its vault and issue OHM. for the former, the protocol sells discounted OHM that can be exercised within a few days in exchange for various assets, such as stablecoins or LP tokens paired with OHM; for the latter, OHM holders can pledge their tokens to obtain newly issued OHM, which helps minimize bond dilution.
While these adjustments had a significant impact on their price, the model pioneered by Olympus enabled the agreement to have 99.2% OHM liquidity and allowed them to accumulate over $337 million worth of vault value.
As with Fei and FRAX, OHM holders can deploy these reserves to various DeFi protocols through governance decisions to generate revenue or for further strategic purposes.
This funding should also enable Olympus to continue to have a significant impact on the stablecoin industry, which in the long run will help drive its market cap beyond the current $368 million mark.
Notes on Stablecoin Market Capitalization, Market Share and Growth Rate
As mentioned 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.
Of these, UST continues to expand at the fastest rate over the past three months, with a 65% increase in market cap, which has resulted in UST's share of total stablecoin supply increasing nearly fivefold since November 2021, from 2.08% to 10.34%.
Furthermore, the above-average growth of UST and FRAX relative to the overall stablecoin market is an example of how - with greater capital efficiency - algorithmically designed stablecoins can scale more easily.
Also by partnering with each other, both may continue to achieve huge growth, such as with 4Pool: Frax and Terra have partnered to create a pool of UST, FRAX, USDC, and USDT on Curve, which they hope will become the base pair on DEX.
Growth rate ranking.
UST
FRAX
USDC
Battlefield Now that we know the main players in the stablecoin war, let's take a look at their competing fronts and see where each player stands individually.
To do this, we will compare the 8 assets discussed above (USDC, USDT, BUSD, UST, DAI, FRAX, FEI, and OHM) as well as MIM and LUSD (the 6th and 12th largest stablecoins by market cap).
To assess the adoption and usage of each stablecoin, we will examine the liquidity and deposit composition on decentralized exchanges, cryptocurrency markets, and cross-chain bridges.
In addition we will examine the stablecoin holdings on the DAO vault balance sheet and see which are most often used as backing for other stablecoins to assess their desirability and adoption rates as reserve assets.
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