Table of Contents
What makes a “Good” Stablecoin?
“Battle History”
Utilization based on Chains
Utilization Rate 3.1. Stablecoins Utilization on Centralized Exchanges 3.2. Stablecoins Utilization on Decentralized Exchanges 3.3. Total Stablecoins Utilization on Centralized & Decentralized Exchanges
Stablecoins Decentralization Breakdown
Stablecoins Peg Analysis Food for Thought
User Confidence is undeniably important, especially seeing the recent collapse of protocols (LUNA/UST) and the most recent FTX collapse, in just matters of days.
Some of it is due to fundamental reasons or speculated breaches, we do feel that a huge part is also the confidence in customers/users in the protocol/exchange itself, and we feel this also applies to Stablecoins.
We have seen exchanges quickly coming out to let users know that they are doing Merkle-Tree Proof of Reserves around the time FTX was said to be insolvent.
In Stablecoins, some due diligence must be done by users themselves to identify what they consider a good, yet safe Stablecoin to use.
Hence, we have put together a few key points and analysis of what we think you should take note of to identify confidence in the Stablecoin and also help in reducing the odds of you getting “rugged”.
Those who have been in the Crypto Space for a few years will know that “battle-tested” tokens which have survived various conditions of the Crypto Market and are still “surviving” normally means they are doing something right.
In such a volatile environment, if a Stablecoin has yet to collapse (Hint!: UST is not one of them!) and still holds its peg, normally means that there is confidence in that Stablecoin which suggests that it might be a “better” Stablecoin.
We think that the longer a Stablecoin stays in this space without collapsing, the more credibility they have.
Therefore we can see that we have a clear winner, which is USDT.
It has been the longest standing stablecoin, and has been through various market conditions but is still trading at peg, which shows that there is user confidence in the stablecoin.
Having some substantial amount of flow into various chains could also be a good way to see how utilized these tokens really are. Generally we want to see these tokens on more chains rather than just solely on one chain.
We have mainly referred to the data on DefiLlama.
Source: https://defillama.com/stablecoins
“Why isn’t anybody talking about this?!”
In the data below, we have only included chains with more than $1,000,000 worth of Stablecoin flows.
The idea behind the Utilization Rate is to see the usage of each Stablecoin in comparison to its Market Capitalization.
A Stablecoin with a higher Utilization Rate when compared to others is generally a good sign that the Stablecoin is being “used”.
A Stablecoin being actively “used” especially during periods of uncertainty, generally shows confidence in the Stablecoin.
Therefore to calculate the Utilization Rate, we will simply take the 24H Volume / Market Capitalization.
The Utilization Rate will be higher than usual, as due to the recent insolvency of FTX/Alameda as well as possibly many entities not revealed yet, the fear in the market will increase the demand for Stablecoins.
We think that this is a good time to compare these Stablecoins, as in periods of stress, we can see which Stablecoins users truly feel is “safe” to transact in.
Higher Utilization means higher liquidity, and also suggests that users are actually using that Stablecoin to do transactions.
Therefore if you are trading more on Centralized Exchanges, you might want to place more importance in the consideration of a higher utilized stablecoin on Centralized Exchanges, and likewise the same case for Decentralized Exchanges.
However, we also put together a combination of the Utilization Rate on Centralized + Decentralized Exchanges to get a good overview of the whole picture.
We will be referencing the volume from CoinMarketCap.
Source: https://coinmarketcap.com/view/stablecoin/
All figures are approximate.
There are some Stablecoins such as FRAX which has too low of a Utilization Rate which is why it's not included in the table, as it is clear that it is not being utilized much on centralized exchanges.
It is quite clear that USDT is the clear winner in terms of utilization on Centralized Exchanges, with the runner up being BUSD.
For Decentralized Exchanges, DAI appears to have the highest Utilization Rate and this is followed by USDC.
In general, it seems that the Top 4 Market Capitalization tokens also has the highest utilization rate for CEX + DEX combined.
Hence, as mentioned above, it would depend on whether you trade more on CEX or DEX and assess which Stablecoin has a higher utilization rate there.
We can see that in general the utilization rate for stablecoins is generally higher in CEXs, and although another factor could be due to the native token being commonly used within trading pairs for each network/chain for DEXs.
However, these are the top 3 Stablecoins for CEX and DEX (depending where you trade on) to be considered as “better” Stablecoins in terms of just looking at Utilization Rate.
“Why isn’t anybody talking about this?!”
Did you know that Stablecoins issuers can freeze your Stablecoins even if it is in your own wallet? “Your keys, your coins” does not apply in this case!
Although some of it is due to legitimate reasons, generally this shows the stablecoin is not exactly “Decentralized”.
Hence, to get a good idea of how Decentralized a Stablecoin is, we are going to look at whether the issuing entity has any past history of freezing funds/wallets.
Hence, in this case although we do not have a clear winner, we feel that DAI, when compared to the rest, is a good option for users who would prefer to have full custody of their Stablecoins.
Do note that Decentralization covers a wide range of areas besides the freezing of funds, and this is just one way to look at it.
“Why isn’t anybody talking about this?!”
Please note that the data below is from Defillama. If you trade on centralized exchanges, or any protocol that relies on its own price feeds, it is recommended you also take a look at that exchange/protocol you are trading on to look for the peg history. (Source: https://defillama.com/stablecoins)
When we state it is sorted by Most to Least “Safest”, we take the assumption that being closer to Peg is generally “safer”. Being above peg might not exactly be favorable to users, depending on which side of the trade you are on.
** **More Decentralized Stablecoins has historically shown greater instability, and has a higher chance of crashing in a black swan event.
Centralized Stablecoins are supposedly “safer” in terms of keeping its dollar value, but there is always the probability that the issuing entity can freeze the funds.
For us at HashBrown Research, we would prefer to use DEXs over CEXs, hence what we would consider a “good” Stablecoin based on the Utilization Ratio on DEXs.
We also would be more inclined to use DAI, although the collateralization is a concern, we believe that with future innovation, maybe DAI can come up with a different collateralization system so as to minimize the dependency of a centralized stablecoin such as USDC.
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Do you look at any data when choosing to use a Stablecoin?
Feel free to connect with us on our Socials as we would like to hear your thoughts!