An industry-leading research platform – Messari – recently published an article on how stablecoin value transfer has “flippened” Ether’s adjusted value transfer on Ethereum. In other words, there’s more value being transferred with Ethereum-based stablecoins than Ethereum’s native asset, Ether. 

Why Is This Significant? 

The growing relevance of stablecoins as a medium-of-exchange solves one of the long-standing problems within the crypto asset space – people are unlikely to spend something that they believe will accrue value in the future. Plainly speaking, no one wants to be that guy who spent 20,000 BTC for a pizza. 

Stablecoins offers a beneficial alternative to volatile crypto assets like BTC and ETH as they are supercharged with one of the same main attributes: permissionless transfer of value. More specifically, stablecoins take this a step further by enabling permissionless transfer of stable value. 

With DAI, USDC, and other prominent stablecoins, anyone in the world with an internet connection can access stable value and send it anywhere else in the world within a matter of minutes, for a few cents. 

This has massive potential within emerging countries where central governments are known for irresponsible fiscal and monetary policy, making their currency weak or subject to heavy inflation. As examples, South American countries like Argentina and Venezuela suffer from extraordinarily high inflation, making purchasing power for the general population plummet year over year.

More importantly, these assets are beginning to form liquid, permissionless lending markets. Not only can anyone in the world access stable value and transfer it anywhere in the world, but they can also earn passive income from them as well. As of today, interest rates in DeFi dwarf the ones offered by traditional banks, even in developed countries. By a lot.

The average savings account in the United States offers 0.09% APY on holdings. A normal Wells Fargo “savings” account offers 0.01% APY along with $5 in monthly fees if the account balance is below $300. 

Let’s break that down a bit: One of the largest banks in the United States (the country that is the global leader in GDP and finance at large) offers its customers nearly 0% APY on their money in addition to charging people for being too poor.  

The potential for stablecoins built on permissionless financial infrastructure like Ethereum supercharges these assets like nothing the existing financial market has seen before. 

Incomes and interest rates can be earned and claimed in real-time, tokenized assets like real estate and equities can operate in a frictionless fashion, and taking out a loan can occur in a few minutes with little to no paperwork. All while being accessible by anyone in the world with an internet connection.

There’s an opportunity for DeFi to disrupt every economy across the globe, emerging or established. 

The recent flippening of transfer value on stablecoins relative to Ether is one of the first signs of a product market fit for stable currencies in the broader market. 

Stablecoin Growth

2018 was the year of stablecoins. 2019 was the year of DeFi. Together, they’ve created a new paradigm for global finance. Since the introduction of DAI, USDC, and others, the DeFi space has seen unprecedented growth across the board. Over the course of 2019, stablecoins saw relatively fair growth in terms of market cap, largely led by the migration of Tether to Ethereum. 

Data via CoinMetrics

While Tether dominates the stablecoin market in terms of market cap, there are some hesitancies with its background and the underlying collateralization ratios (i.e. it may be true that not every Tether in circulation is backed by a US dollar). Due to its lack of transparency, we can omit Tether from the graph to get a more granular view on how stablecoins grew in terms of market cap from the beginning of 2019 to date. 

It is important to note that CoinMetrics’ data only includes Single Collateral Dai, therefore showing signs of negative growth for Maker’s stablecoin as the broader market continues to migrate from Single-Collateral Dai (SAI) to Multi-Collateral Dai (DAI). Data via CoinMetrics

Outside of Tether, Coinbase’s USDC is the leading stablecoin on the market in terms of both market cap and growth in the past year. By including the recent migration of Multi-Collateral Dai into our dataset, we can see that PAX, DAI, and USDC all saw substantial growth over the course of 2019, resulting in +53.91%, +54.52%, +69.92% growth in market cap respectively. On the flip side, GUSD and TUSD both saw significant declines with Gemini’s stablecoin losing around -95% of its market cap. 

Data via CoinMetrics

 

Stablecoin Usage

By looking at the amount of value transferred in a single day relative to its market cap, we can see how much these stablecoins are being used within the network. A lower ratio would mean that the stablecoin is being used frequently to transfer value relative to its available circulating supply whereas a higher ratio would mean that the stablecoin is not used as frequently for value transfer. This ratio is a good signal on the utility of these stablecoins within the market. 

Looking at the numbers, we can see that Dai is the clear leader in terms of usage as it holds a ratio of nearly 3.16. The diverse range of lending markets and the integration of DSR along with other DeFi products integrating Dai as a core asset creates a significant amount of usage relative to the rest of the field. With that, USDC and USDT (ETH) also saw a fair amount of value transfer with respect to its market cap, holding a value-transfer ratio of 4.98 and 4.30, respectively. 

All of these stable coins performed better in this metric than Ether itself, holding a value-transfer ratio of 71.54. 

Data via CoinMetrics 

To give you a different perspective on the numbers above and what they may mean, Dai transferred around 31.69% of its total available value (or economic bandwidth) in a single day. Comparatively, USDC used around 20.10%, USDT used around 23.26%, while ETH used a mere 1.3%. In other words, for simple day-to-day transfers of value, users are opting towards stablecoins while holding ETH instead.  

Key Takeaways

The growth of stablecoins and the recent surpassing of Ether in terms of on-chain value is an important sign of a product-market fit. Global users can massively benefit from storing value in a safe and permissionless manner. More importantly, the proliferation of DeFi has created an encompassing liquid lending market, allowing anyone in the world to earn a significant passive income on a stable currency. 

With the recent bump of the Dai Savings Rate to 7.75% APY, we can expect that stablecoin users will continue to capitalize on this high yielding opportunity. Theoretically, as word gets out and people become familiar with Dai and the opportunities within DeFi, we can hope that the global population will begin to opt-in towards non-sovereign, permissionless stablecoin over the course of the next decade. 

With that in mind, the next few years of stablecoins will be extremely interesting to watch as sovereign states and central banks explore the potential to launch their own digital currency, expanding reach, surveillance, and control on their currencies. 

Ultimately, the growth in DeFi has been nothing short of exciting. As stablecoins and their encompassing lending markets continue to mature over the next decade, it will be interesting to see how they find a fit within the global economy.