While 2020 has mostly been about the growth in DeFi as that sector has captured the imagination of the ecosystem, the stablecoin market has also had an incredible season. In fact, the stablecoin market took off just when Bitcoin had its darkest time in 2020.
In Mid-March, the entire financial system collapsed as Bitcoin lost some early gains in January and February. To try and soften the blow there was a big push to pump secure and stable value into the space through the minting of more stablecoins.
Now, the latest milestone to be breached is $20 billion and it is a notable increase in recent times when the entire stablecoin market cap is plotted on a graph.
The space that stablecoin’s have carved out in the cryptocurrency space is an interesting one as they are entirely against the volatility that has made the likes of Bitcoin so famous and well liked by investors. Stablecoins have provided a usable digital currency that holds its value steady.
The main driver of the most recent rise is the latest downward pricing trend in non-stablecoin digital currencies such as bitcoin, according to John Todaro, director of institutional research at cryptocurrency analysis firm TradeBlock.
“Because some exchanges do not offer fiat pairs, stablecoins are the only available option for traders to move risk off into fiat-like assets during periods of volatility,” Todaro wrote in an email response to CoinDesk.
The surge of stablecoin demand may also be because of heightened interest in the decentralized finance (DeFi) sector. Stablecoins are used by DeFi users to receive high yields from a variety of DeFi platforms, such as Uniswap, Curve and Aave.
With more political uncertainty, stablecoins are also being used by individuals and corporations to “bypass capital controls and other enforcements in order to move USD-like assets around,” said Todaro.
Setting a trend
Another point to note about the rise in stablecoins is also the rise in CBDC’s as governments and nations start to realise the power of the technology and how it can digitalise the payments space entirely.
CBDC’s of course differ to the likes of Tether and other stablecoins in the cryptocurrency space, but the pioneering in this space has certainly been emulated by some major central banks.