Market Byte: Stablecoins in Flux
Will Ogden Moore
Last Updated: 8/11/2023 | 9 min. read
While renewed pressure on Tether — today’s most prominent stablecoin — introduced recent turmoil into the stablecoin markets, we are encouraged by TradFi adoption and proposed legislation.
Given Paypal’s announcement, we believe the company will leverage Venmo to issue a stablecoin on Ethereum blockchain, which will serve as a tailwind for the space by both further legitimizing the asset class and driving adoption.
Over the intermediate term, we expect that continued competition from new entrants and further regulatory clarity will help drive stablecoin adoption, and ultimately boost blockchain network activity.
Although Tether’s volatility bears watching, we expect that competition from new entrants and further regulatory clarity will help drive stablecoin adoption, and ultimately boost blockchain network activity.
Exhibit 1: Tether (USDT) moved off its $1 peg this month
Exhibit 2: Tether gained market share over BUSD and USDC
Exhibit 3: Bank stress in March 2023 appears to have resulted in USDC’s depeg
Exhibit 4: An apparent surplus of Tether in the marketplace
Source: Allium.so, data as of Aug 10, 2023. Past performance not indicative of future results.
While legacy stablecoins like Tether are critical to the crypto market today, new entrants, technological innovations, and regulatory clarity may be more important for stablecoin adoption and blockchain network use over time.
Congress also continues to make progress on comprehensive stablecoin legislation. The bill was voted out of committee in late July 2023 with several Democrats voting in favor along with committee Republicans. The legislation would provide oversight to non-bank stablecoin issuers and specify the roles of other regulators. While we are unsure whether the bill will become law, its progress so far suggests we may be closer to US regulatory clarity for this critical segment of the crypto industry.
Not a Stable Marketplace
Unlike the traditional financial system, public blockchains offer “always open” payment channels, which can in some cases be cheaper and faster. While payments were always part of crypto’s potential, PayPal and PYUSD provide a clear avenue for this use case on a mainstream, non-crypto native level. As a result, payments as a use case may be an important driver of crypto adoption in the future.
[4] Tether was not the only stablecoin to come under pressure recently: crvUSD also briefly lost its peg following the Curve back in late July.
[8] Despite the tumult, on July 31 Tether reported $3.3bn in excess reserves and over $1bn in quarterly operational profits.
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Stablecoins are digital assets that are pegged to the value of a fiat currency or commodity, such as the US dollar or gold. Total Value Locked (TVL) is a metric used to measure the total value of digital assets that are locked or staked in a particular decentralized finance (DeFi) platform or distributed application (dApp).
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