Top Stablecoins Surge in Market Cap, Regulatory Changes on the Horizon

The market capitalization of the top 10 fiat-pegged stablecoins has increased dramatically since 2020. During the cryptocurrency bull run of 2020-2021, the total market cap surged by over 3,100%, reaching a peak of $181.7 billion in March 2022.

Following the collapse of Terra and its UST stablecoin, the market cap temporarily declined but rebounded in November 2023. As of August 2024, the total market cap for fiat-pegged stablecoins has reached $161.2 billion, representing a 35.4% increase since the previous year.

Tether (USDT) remains the dominant stablecoin, accounting for 70.3% of the total market cap. USDC, while holding a significant share of 20.6%, has declined since the US banking crisis in March 2023. Other stablecoins, such as Dai, hold relatively smaller market portions.

Commodity-backed stablecoins pegged to precious metals like gold, have also gained traction. Tether Gold (XAUT) and PAX Gold (PAXG) together account for 78% of the commodity-backed stablecoin market. This has grown by 212 times since 2020. However, commodity-backed stablecoins still represent a small fraction of the overall fiat-pegged stablecoin market. In fact, they only represent 0.8% of the total market cap.

Recent developments include the launch of Uranium308, a stablecoin pegged to the price of uranium. Despite its initial launch, the Uranium308 project has since become inactive.

As of August 1, 2024, stablecoins comprised 8.2% of the total cryptocurrency market capitalization. This represents a significant increase from early 2020 when they accounted for only 2% of the market. The stablecoin sector experienced rapid growth during the DeFi boom and reached a peak of 15.6% in May 2022, largely driven by the TerraUSD stablecoin.

Following the collapse of UST, stablecoin dominance plummeted but subsequently rebounded to a high of 18.4% as investors sought refuge in stable assets during the ensuing bear market.

While established stablecoins like USDT, USDC, and DAI have generally maintained their peg to the U.S. dollar, they can still experience temporary de-pegging during periods of market volatility. For example, the March 2023 banking crisis led to uncertainty surrounding deposits at Silvergate and Signature Bank, temporarily causing some stablecoins to lose their peg.

Newer stablecoins, particularly those with partially algorithmic designs like USDD, DAI, and FRAX, tend to be more volatile and rely on market arbitrage to maintain their peg. The history of stablecoin failures, including Iron Finance and Basis Cash, underscores the challenges associated with designing and maintaining stablecoins, especially those that deviate from traditional collateral-backed models.

The top 10 stablecoins collectively have 8.7 million holders. USDT, USDC, and DAI account for most holders, with 97.1% of the total. USDT boasts the largest number of holders, with over 5.8 million wallets, significantly outpacing USDC, its closest competitor. The remaining eight stablecoins have fewer than a million holders each, with just over 505,000 wallets holding DAI.

The growth of stablecoins accelerated in 2020 but slowed dramatically in 2022 following the collapse of Terra. Concerns about insolvency within the stablecoin sector contributed to this deceleration. Investors became more cautious and sought refuge in established, well-collateralized coins.