2019 is undoubtedly an important year for the development of stable coins and decentralized finance (DeFi), which is particularly evident in the Ethereum blockchain. Regarding the topic of stabilizing coins, Blockdata has written an excellent and comprehensive report that has conducted extensive research on the stable currency ecosystem and provided many insights that deserve attention.
Some highlights: First, since the beginning of 2017, more than 200 stable currency projects have emerged in the market, and only 30% of the projects have not been publicly released. At the time of writing the report, there were 66 stable and active stable currency projects on the market. The report also pointed out that 2019-2020 is likely to be the fastest growing period of stable currency.
Among the released stable coins, 50% of the active stable coins are developed based on the Ethereum network. In addition, the report found that USD Coin like Tether, Coinbase and Gemini Dollar of Gemini are the most active among the stable currencies, while stable coins anchored with gold are most likely to fail. Of all the existing stable currencies, Tether received the most support, and it raised more than $1 billion through IEO events this year.
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Stabilizing coin 101
Before entering the text, let's talk about the background of the stable currency.
A stable currency is a cryptographic asset that is stable relative to the anchor (such as the US dollar) and can be applied to any decentralized application.
Since volatility hinders the widespread use of cryptocurrency as a value store, cryptocurrency is generally not considered a suitable means of transaction or unit of account. In fact, if the value of a certain digital currency fluctuates greatly, companies are less likely to accept such a digital currency.
There are many factors that cause fluctuations, including:
- Static monetary policy;
- The public's perception is constantly changing;
- This is an emerging market;
- The market is not regulated;
6 applications for stable coins
At present, the main application examples of stable currency are as follows:
- money transfer;
- Commercial payments, for any company that accepts daily payments, volatility needs to be avoided;
- Wages, rent or any other recurring payment;
- Lending and forecasting the market;
- Trading and wealth management, in this case, the demand for stable coins is great because they (1) allow the use of dollar trading pairs instead of only BTC or ETH, and (2) by simply showing the fluctuations in the currency Visibility and adoption rate, (3) provide arbitrage opportunities;
- Value storage for long-term hedging: for example, miners pay recurring costs to ensure stable income;
Three stable currency types
There are three main types of stable coins currently on the market, as shown in the following figure:
Courtesy of Haseeb Qureshi
(1) French currency mortgage stable currency
IOU-style “centralized” stable currency guaranteed by fiat or commodity, examples are Tether, USD Coin, Gemini Dollar and Digix;
(2) cryptocurrency mortgage stable currency
IOU-style "decentralized" stable currency secured by cryptocurrency or multiple asset collateral, examples include MakerDAO, Steem, and Alchemint;
(3) Non-mortgage stable currency
Seignorage Shares, decentralized banks, algorithmic stabilization mechanisms. Examples of such stable coins are Terra, Ampleforth, and Element Zero.
The most popular stable currency blockchain: Ethereum
As of now, Ethereum is the leader platform for stable currency issuance. There are 33 stable currency projects based on Ethereum, the second is bit stocks (8), and the third is stars with 6 stable coins. (Stellar).
The dominant position of Ethereum is caused by many reasons. First, Ethereum benefited from its pioneering edge, and early projects such as Makerdao chose to release DAI on the basis of Ethereum. Secondly, Ethereum's ERC20 token standard has been widely used, which is highly compatible with wallets, exchanges and analytical tools (such as Alethio, Etherscan, MyCrypto, etc.), so many stable currency projects will be selected in the Ethereum platform. Released. The Ethereum Enterprise Edition (such as Quorum used by JPMorgan Chase) further promotes Ethereum as the main candidate for stable currency issuance.
Stabilizing currency financing
The first exchange-issued (IEO) as a new way of raising money in the cryptocurrency industry showed an explosive trend in 2019. It's worth noting that Tether raised $1 billion through IEO, and in the past two years, other top stable currency projects and companies raised more than $500 million in total funds, such as Coinbase's USD Coin raised through three rounds of financing. More than 200 million US dollars.
Venture capitalists understand that if a stable currency is successful, it can generate considerable profits. Venture capital institutions such as Digital Money Group (DCG), Blockchain Capital and Andreessen Horowitz have invested heavily in cryptocurrency, particularly in the area of stable currencies. In fact, almost half of the active stable coins are behind venture capital institutions.
In the past two years, the number of stable coins has grown rapidly. Although pioneering stable currencies such as Tether and Dai still dominate, the competition in the stable currency market is rapidly heating up.