Stablecoins, which are cryptocurrencies designed to maintain a stable value by pegging their price to a reserve asset, have become increasingly prevalent in crypto transactions. A research found that the majority of crypto transactions now incorporate stablecoins, underlining their systemic importance within cryptocurrency markets.
In a recent deep dive into the stablecoin market structure, conducted by chain analytics firm Kaiko, a number of significant developments and emerging trends have been identified. The study focused on the top five stablecoins by market capitalization—USDT, USDC, BUSD, TUSD, and DAI—and shed light on the evolving role of stablecoins in the cryptocurrency market.
Among the key findings, Tether (USDT) emerged as the dominant stablecoin, accounting for a staggering 70% of the market share on centralized exchanges. However, TUSD, previously a lesser-known stablecoin, has experienced a remarkable surge in market share since March, climbing from less than 1% to an impressive 19%. This growth can be attributed to Binance’s selection of TUSD as a successor to BUSD, combined with the promotion of a BTC-TUSD trading pair with zero fees.
While stablecoins have gained traction, concerns have arisen regarding their volatility and lack of transparency. The article highlights recent instances of instability within the stablecoin market, such as TUSD’s wobble following the closure of Prime Trust and USDT’s depegging due to mysterious selling activity. BUSD has also experienced increased volatility since the suspension of issuance by Paxos, and USDC faced a crash during the March banking crisis. These episodes of instability have exposed the potential for mass market contagion stemming from even the slightest depeg of stablecoins.
The research also emphasizes the heavy reliance on centralized stablecoins in the crypto market, with decentralized exchanges (DEXs) accounting for only 5% of stablecoin trading volume. However, during the March banking crisis, this ratio briefly spiked to 45%, indicating a shift in preference for decentralized platforms during times of market uncertainty.
The study raises concerns about the lack of transparency and governance surrounding stablecoins, particularly as upcoming regulation in the European region, known as MiCa, places pressure on stablecoin issuers to improve their practices. While some stablecoin issuers, such as Circle (USDC) and even Tether, have made efforts to enhance transparency, TUSD’s relatively unknown nature and limited information about its reserves or corporate structure pose a significant risk.