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Executive Summary
Stablecoins, as the name implies, are a class of cryptocurrencies whose ultimate goal is to be price stable with different mechanisms to maintain stability. Stablecoins can be classified into four categories: fiat-backed, commodity-backed, crypto-backed, and algorithmic stablecoins.
In this report, we analyse several prominent players in the stablecoin space including USDT, USDC, UST, BUSD, etc., providing an overview of their market cap, market dominance, NVT ratio, volatility, and social media followers to demonstrate the trend in the history and the period of UST’s collapse in May. We also delve into some potential risks and common criticisms for the major stablecoins, together with the industry’s efforts to improve.
Here are the key findings:
- Fiat-backed stablecoins are one of the most widely used stablecoins. However, Tether faced questions about what its USDT coin is backed by, with criticisms of too much short-term corporate debt in its reserves. To resolve the ongoing concerns, Tether recently claimed to reduce corporate debt from 44% (Q3 2021) to 17% by April 2022 and increase holdings of U.S. Treasurys to 13%.
- Commodity-backed stablecoin PAX Gold (PAXG) was found to have an inconsistency between the amount of gold backing PAXG and the number of PAXG issued in April 2020. To improve, PAXG implemented an online lookup tool and partnered with Chainlink in January 2021, ensuring the verification that every PAXG is fully backed by allocated gold.
- Crypto-backed stablecoin DAI, previously known as SAI (single-collateral), was launched in December 2017. Shortly after its release, it depegged below US$0.72 on 12 January 2018. DAI made enhancements starting in November 2019 by updating single-collateral DAI (ETH only) to multiple-collateral DAI to reduce the risks of volatility of single-crypto assets. Moreover, DAI is trying to maintain stability through over-collateralised assets in its positions.
- Algorithmic stablecoins suffer from loss of confidence and peg breaks as they are usually non-asset backed. A detailed analysis of depegging in Terra’s UST and Neutrino USD (USDN) is introduced by a Crypto.com report titled Depegging Events in Fiat and Crypto. FRAX presented a novel solution (i.e., fractional-algorithmic) — partially backed by collateral and partially stabilised algorithmically. It currently maintains a peg to US$1 by being partially collateralised by USDC (stable assets) alongside periodically buying and selling FXS (Frax shares, governance token).
Read the full report here: Top Stablecoins by Market Cap: A Comprehensive Analysis
