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Stablecoins are a large part of the discussion in crypto-land, and probably for good reason. They currently represent ~2% of the whole market capitalization of cryptoassets, which unarguably puts them in the Top-5 clusters in the cryptoasset space (alongside currencies, smart contract platforms, privacy coins and exchange tokens) — an impressive feat, no less. Their utility is beyond any question, as in a universe of highly volatile assets, they stand out as a plausible solution to a huge adoption hurdle. As such, many have put stablecoins front and centre when considering what the key pivots that trigger the next wave of adoption, might be.
The cluster’s ecosystem has developed significantly over the crypto-winter (especially from 4Q2018 onwards), with new entrants challenging for Tether’s monopoly and older features continuously iterating and improving on their fundamentals (e.g. DAI). Be that as it may, stablecoins are still rough around the edges. Their claim to stability is repeatedly challenged, liquidity is oftentimes scarce, while the market leader’s viability has sent pundits and investors alike in a multi-year long “witch hunt”.
In the sections to follow I aim to provide an overview of how the space has developed in recent times, looking at key variables such as market shares and liquidity, provide some colour on stablecoin volatility and its various sources, and further, make a case for what the fundamental drivers of stability are and how these are some of the key areas for current issuers to focus on. Let’s dive in.
Relative market shares: Tether is being challenged
Let’s first have a look at how the competitive landscape has developed over the past couple of years in the stablecoin space. The following plot examines the relationships between the relativemarketcaps of the stablecoins examined. The focus here is on the most dynamic competitors in the space, and less so on more fringe players such as Digix Gold, bitUSD and Steem Dollars.
Evolution of relative marketcap shares of popular stablecoins (
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