Stablecoin Watch: Is Ethereum Still The Most Popular Blockchain For Stablecoins?

Summary

• Magic Internet Money (MIM, +14% MoM), Pax Dollar (USDP, +14% MoM) and TrueUSD (TUSD, +12% MoM) recorded the largest increases in market capitalization over the past month.
• USD Coin (USDC, -6% MoM) and Binance USD (BUSD, -1% MoM) recorded the biggest drop in market cap over the past month.
• Pax Dollar (USDP) remains the most volatile stablecoin in the past month.
• US 3M Treasuries continue to outperform stablecoin yields.

Tron now boasts more USDT transactions than Ethereum

Ethereum dominates DeFi with 59% of TVL in DeFi ($49 billion). However, competition is increasing as alternative blockchains challenge Ethereum’s hold on DeFi and stablecoins. The crypto space is evolving, and Ethereum should watch out.

The total stablecoin market capitalization is around $137 billion according to data from DeFi Llama. Of this, around 59% can be attributed to stablecoins implemented on the Ethereum blockchain. The second most dominant chain for stablecoins by market capitalization share is Tron (TRX), which takes 27% of the total. Outside of Ethereum and Tron are the blockchains Binance Smart Chain, Polygon, Solana, Avalanche, Arbitrum, Optimism, Fantom and Algorand, each of which charges between 0.2% and 7%. So it’s safe to say that Ethereum and Tron reign supreme in the stablecoin world.

Ethereum’s stablecoin dominance has been declining (currently 59%, -273bps YTD, Figure 1) while Tron has been rising (currently 27%, +248bps YTD). And that’s not the only area where Tron is outperforming – TVL in DeFi ($5.11 billion) recently surpassed Binance Smart Chain ($5.09 billion), making it the second most popular DeFi blockchain (after Ethereum) by TVL (we recently identified the development of TVL as one of the three trends that matter for DeFi in 2023).

Furthermore, 50% of the largest stablecoin by market capitalization (USDT, $68 billion) is now held on the Tron blockchain (Figure 2). The trend is similar to that of the general stablecoin dominance; The amount of USDT on Ethereum has fallen while that of Tron is rising.

Why are Stablecoins moving to Tron?

Two main reasons stand out as possible explanations for why stablecoins are increasingly being implemented on Tron over Ethereum:

• Scalability: Tron has a higher transaction processing capability than Ethereum, which may make it more suitable for high-volume transactions such as those involving stablecoins. That said, ethereum is expected to roll out upgrades that will enable sharding, which is expected to significantly reduce network congestion and increase transactions per second.
• Transaction costs: Tron generally has lower transaction costs than Ethereum.

Will the trend continue? Only time will tell. Ethereum is poised for several upcoming upgrades to address its weaknesses in scalability and transaction costs, but Tron is hot on its heels with a thriving DeFi ecosystem. Right now, stablecoin players seeking lower cost and faster blockchain solutions seem to be flocking to Tron. We will keep an eye on Tron as the stablecoin landscape evolves.

Latest developments

Market value and stick risk

The market values ​​of Magic Internet Money (MIM, +14% MoM), Pax Dollar (USDP, +14% MoM) and TrueUSD (TUSD, +12% MoM) are up the most (Figure 3). Meanwhile, Binance USD (BUSD, -1% MoM) and USD Coin (USDC, -6% MoM) are falling the most by market cap.

USDD was freed at 97 cents on January 20 and has since risen back to 99 cents.

Volatility

On stablecoin volatility:

• One-month annualized volatility of the Pax Dollar (USDP, 6.5%) is the highest among the stablecoins we track (Figure 4).
• Over the past three months, USDP (5.6%), USDD (4.7%) and GUSD (4.5%) have been the most volatile stablecoins.
• Over the past year, GUSD (7.6%), FRAX (5.3%), USDD (5.2%) and MIM (4.7%) have been the most volatile.

Crops

In terms of interest rates, on Compound the average (over the past seven days) lending rates are highest for USDT (about 2.3%) and lowest for TUSD (about 0.18%). Lending rates on the five stablecoins we track on Compound remain overshadowed by US 3M rates (Figure 5).

Meanwhile, average (over the last seven days) borrowing rates are highest for USDT (about 4%) and lowest for TUSD (about 1.1%). The difference between US 3M Treasury rates and stable coin lending rates is tighter than the corresponding difference between stable coin lending rates (Figure 6).

appendix

USDT: Tether is one fiat secured stablecoin primarily issued on the ethereum and bitcoin blockchains. It aims to be pegged 1:1 against the US dollar. Tether’s reserves are not backed 100% by US dollar deposits. Instead, they are backed by reserves that include cash, cash equivalents, short-term deposits, certificates of deposit, corporate bonds, mutual funds, precious metals, secured loans and other investments, including digital tokens.

USDC: USD Coin is one fiat secured stablecoin issued as ERC-20 tokens on the ethereum blockchain. It is backed 100% by cash and short-dated US Treasuries. The USDC publishes a monthly public attestation of 100% reserves.

BUSD: Binance USD is one fiat secured stablecoin issued as ERC-20 tokens on the ethereum blockchain. It is backed 100% by USD held in Paxos-owned US bank accounts and US T-bills (including through repurchase agreements and/or money market funds invested in US T-bills). Paxos is a New-York regulated financial institution and publishes a monthly public attestation of 100% reserves.

THOUSANDS: TrueUSD is one fiat secured stablecoin issued by the TrustToken platform that is issued as ERC-20 tokens on the ethereum blockchain. It aims to maintain its 1:1 peg to the US dollar by being fully collateralized by the US dollar using multiple escrow accounts to reduce counterparty risk.

USDP: Pax Dollar is one fiat secured stablecoin issued as ERC-20 tokens on the ethereum blockchain. It aims to be pegged 1:1 to the US dollar by holding USD reserves in Paxos-owned US bank accounts.

DAI: Dai is one crypto-secured stablecoin that attempts to maintain a 1:1 link against the US dollar by staking other cryptoassets into smart contracts on the ethereum blockchain every time a new DAI token is issued. DAI is maintained by a decentralized autonomous organization (DAO) called MakerDAO. And since the mechanism is maintained by a system of smart contracts, it has higher decentralization than the centralized entities that control USDT, USDC or BUSD.

MIM: Magic Internet Money is one crypto-secured stablecoin launched by The DeFi platform Abracadabra. MIM is backed by interest-bearing tokens (ibTKN).