As the world of finance becomes increasingly digitized, digital currencies have taken center stage in the financial sector. However, one of the biggest challenges facing digital or cryptocurrencies is their volatility. Enter stablecoins – a digital currency where its value is tied to another asset, like a commodity or fiat currency, to stabilize its price.
Stablecoins have gained significant traction in recent years, thanks to their ability to provide the benefits of both digital currencies and traditional fiat currencies. By maintaining a peg of 1:1 to a reserve asset or an algorithm, stablecoins bridge the world of digital currencies and fiat.
In this report, we've covered everything from type of stablecoins, total market cap to transaction volumes, regulations and emerging stablecoin models.
Total Stablecoins Market Cap
As of January 31, 2023, the total stablecoins market cap is $138.4 billion.
The total stablecoins market cap shrank by $29.5 billion from January 2022, while USD Coin (USDC) and Binance USD (BUSD) gained market share. The total stablecoins market cap started the year at $167.9 billion on January 1, 2022, and ended off at $138.4 billion on January 31, 2023. The $29.5 billion contraction represents a 17.6% decline for the total stablecoins market cap.
| Stablecoins | 1-Jan-22 | 31-Jan-23 | Growth Rate |
| USDT | $78.4B | $67.8B | -13.5% |
| USDC | $42.2B | $42.7B | +1.2% |
| BUSD | $14.5B | $15.7B | +8.9% |
| DAI | $8.9B | $5.1B | -42.7% |
| FRAX | $1.8B | $1.0B | -43.5% |
| Others | $22.1B | $6.0B | -72.8% |
Across the board, all stablecoins faced a similar decline in individual market cap with the exception of USDC and BUSD. Tether (USDT) faced an annual drop of 13.5% while Dai (DAI) declined at 42.7% and Frax (FRAX) at 43.5%. Only USDC and BUSD experienced growth in absolute market cap – with USDC growing by 1.2% and BUSD topping growth at 8.9%. The remaining 10 stablecoins shrank on average 67.5%.
In terms of dominance, USDT remains the undisputed market leader having grown 2.3% in market share to a market dominance of 49.0% at the end of January 2023. USDC and BUSD followed a growth of 5.7% and 2.8%, to a market share of 30.9% and 11.4% respectively.
Total Market Cap of Stablecoins, by Chain
Ethereum dominates the stablecoin market with 59.9% share across all stablecoins as of end January 2023, followed by Tron with 26.5% share across all stablecoins.
Across the top 5 chains, both Ethereum and Tron recorded gains in market share of 5.5% and 5.6% respectively.
In terms of absolute growth, stablecoins market cap shrank across all chains except for Tron, which grew by 2.1% from May 2022 to January 2023. The remaining chains recorded double-digit losses with Solana having the largest decline of 69.1% in stablecoin market cap.
Stablecoins Market Share vs. Total Crypto Market Cap
Despite the total crypto market cap shrinking $1.2 trillion year-on-year (YoY), Stablecoins grew in dominance by 5.6 percentage points (pp). The total crypto market cap started the year at $2.3 trillion in January 2022 and ended off at $1.1 trillion in January 2023. However, the stablecoins market has actually gained dominance over the period. Stablecoin dominance grew by 5.6 percentage points, from 7.3% in January 2022 to 12.9% market share of the total crypto market cap as of January 31, 2023.
Stablecoin dominance saw peaks of 17.8% twice, following the spectacular fallouts of the Terra ecosystem and now-defunct cryptocurrency exchange FTX.
Stablecoins Trading Volumes on Centralized Crypto Exchanges
In terms of stablecoin trading volume on centralized crypto exchanges (CEX), USDT remains by far the most dominant stablecoin with more than 75% market share of trading volume.
This may be attributed to two main factors. Firstly, 90% of trading volume occurs on centralized exchanges, which predominantly use USDT as a trading pair. Secondly, USDT remains the stablecoin of choice for CEXs outside of the US. Even for the largest CEX Binance, USDT pairs still retain a majority share of trading volume, and this will only continue to expand as Binance encounters regulatory troubles with BUSD.
BUSD saw a brief increase in usage early in November 2022, when FTX collapsed. Traders that buy and sell in significant volumes likely migrated to Binance during the fallout, and heavily speculated on price movements for certain tokens. At the same time, there were also negative rumors surrounding USDT, which also momentarily depegged.
Stablecoins on Centralized Crypto Exchanges and YoY Growth
Stablecoins on centralized crypto exchanges (CEXs) have grown in absolute and percentage terms YoY, despite collapses. Despite the bear market, the amount of stablecoins stored on CEXs have actually increased in both absolute value and percentage terms relative to their market cap. Even though we saw a trend reversal late last year with massive withdrawals from CEXs following FTX’s collapse, CEXs still hold 26%, or $36 billion of all stablecoins in circulation.
In comparison, the Terra / UST collapse actually triggered a massive jump in stablecoins flowing into CEXs, likely due to Terra users rushing to CEXs as a way to exit the ecosystem, as well as traders rushing in taking advantage of the event.
The two largest stablecoins stored on CEXs are USDT and BUSD. Specifically for BUSD, around 90% are stored on Binance.
Stablecoin Transaction Volumes on Ethereum (On-chain)
On-chain stablecoin transaction volumes differ vastly from trading volumes on centralized crypto exchanges. Based on Ethereum blockchain data, USDC’s share of on-chain transaction volumes has consistently remained above 40%, since January 2022. In fact, USDC’s on-chain popularity has only increased steadily since, and now hovers at more than 70%. This reflects its position as the stablecoin of choice for the Decentralized Finance (DeFi) community as well as NFTs, whose transactions are all recorded on-chain.
As this is data from the Ethereum chain, Dai is shown to have an outsized share of volume, and BUSD reflects a small share relative to its market cap. 90% of BUSD resides on the Binance chain, and goes to show that the BUSD stablecoin has little adoption outside of the BNB chain.
Types of Stablecoins
There are four different types of stablecoins, including commodity-backed stablecoins, fiat-backed stablecoins, crypto-backed stablecoins and algorithmic stablecoins.
Commodity-backed stablecoins are backed by a commodity such as gold, whereas fiat-backed stablecoins are backed by a fiat currency like the US dollar or the euro. Crypto-backed stablecoins, on the other hand, are backed by cryptocurrencies like Bitcoin or Ethereum. Finally, algorithmic stablecoins are pegged to an on-chain protocol or crypto asset, that pegs its value to a supply and demand ratio, determined by a computer algorithm.
Breakdown of Fiat-Backed Stablecoins, by Currency
Currently, USD denominated stablecoins dominate the cryptocurrency market. As of January 31, 2023, USD stablecoins have a 98.9% share across all stablecoins in the stablecoin sector, amounting to $137 billion in value.
Meanwhile, stablecoins of other denominations contribute $1.45 billion, with commodities making up the majority at 67.4%. This category mainly consists of Paxos Gold (PAXG) and Tether Gold (XAUT). This is followed by EUR stablecoins (28.6%), SGD stablecoins (3.17%), IDR stablecoins (0.35%), CNY stablecoins (0.21%), and TRY stablecoins (0.18%).
Current Stablecoins Landscape by Collateral Type and Degree of Collateralization
Stablecoins can be categorized based on exogenous or endogenous variables, and how much it is collateralized.
If a stablecoin is exogenous, it is backed by external assets. If a stablecoin is endogenous, it is backed by a native asset – in other words, its collateral is embedded within its mechanism. Regardless of exogeny or endogeny, collateralization levels can vary – it may be under collateralized, fully collateralized or over collateralized.
Currently, most stablecoins are exogenous and fully collateralized. Major stablecoins in this category are USDT, USDC, BUSD, USDP, GUSD, TUSD, ALUSD, and DAI.
While much effort has been made to create endogenous stablecoin projects, the majority of these have failed. The most infamous of these, Terra USD, managed to reach a market cap of $18.7 billion before it crashed in May 2022.
Failed Stablecoin Projects, Since 2020
There have been many stablecoin models over the past few years, but few have succeeded.
Fully decentralized stablecoins are most likely to fail. Contrasted by the top 5 stablecoins by market cap, USDT, USDC, BUSD, DAI and FRAX – where the first three are issued by a centralized entity, and a large portion of DAI and FRAX are backed by USDC, decentralized protocols fill the list of failed stablecoin projects. Here are some notable examples:
Basis Cash’s collapse in January 2021: Basis Cash was one of the first decentralized stablecoin projects that failed. It was Do Kwon’s first attempt at engineering a stablecoin model, and he would go on to found UST later in the year. Basis Cash was an seigniorage algorithmic stablecoin composed of two tokens, a stablecoin and a free to move token. If the stablecoin dropped below $1, holders of the second token will be able to purchase the stablecoin at a discounted price. This would then push the price back to peg. Unfortunately, this mechanism failed, and Basis Cash has since collapsed.
Protocols Empty Set Dollar and Dynamic Set Dollar had also failed in similar fashion.
Iron Finance’s collapse in June 2021, attributed to a bank run: Iron Finance saw large redemptions of its stablecoin to USDC, which spooked other market participants and gave rise to a typical bank run, resulting in its collapse.
TerraUSD (USDT) / LUNA collapse in May 2022: TerraUSD (UST), the algorithmic stablecoin of the Terra network, is backed by the LUNA token. However, with a $18.78 billion market cap, large amounts of capital was required to prop it up in a depegging event. When over $2 billion worth of UST was unstaked and liquidated, sell-offs drove the price of UST down from $1 to $0.91. Holders flocked to exits, and eventually resulted in a death spiral of LUNA and the UST being permanently depegged.
Fei USD shuttered in August 2022: Fei USD is the only stablecoin that’s shut down by choice, rather than external market forces. The project cited “mounting technical, financial, and future regulatory risks” as reasons for closing shop. With that, FEI holders are required to redeem their FEI for DAI.
Emerging Stablecoin Models
In order to achieve DeFi dominance, a project would require its own stablecoin, decentralized exchange (DEX) and lending protocol, according to Sam Kazemian’s ‘DeFi Trinity’ theory.
Some of the largest protocols have started building in this direction, developing their own DEX and lending protocol alongside the stablecoin. Unsurprisingly, Frax has made the first move by introducing Fraxswap and Fraxlend to complement its own stablecoin, and other protocols are quickly catching up. The ongoing issues surrounding centralized stablecoins like the risk of regulatory scrutiny – notably, the recent winding down of BUSD — has only accelerated efforts towards building a truly decentralized stablecoin model.
The market is eagerly anticipating the launch of protocol-native stablecoins by two of the largest DeFi protocols, namely crvUSD by Curve, as well as GHO by AAVE in 2023. Both have their own novel designs built on their respective base protocols, and more importantly will have features that strengthen their respective flywheels.
Beyond protocol-native stables, other stablecoin models are still being experimented with. USDD (USDD) continues to represent endogenous collateralized stablecoins, backed by multiple tokens including BTC, USDT and USDC. Projects such as Rai and Olympus are attempting to create a stablecoin which is not actually pegged to fiat currencies. Ampleforth may be the most interesting – a pure rebase stablecoin with no collateral.
Stablecoin Regulations
Following major setbacks such as the Terra / UST collapse and FTX meltdown, with many investors suffering significant losses, governments and regulators have been pressured to take action. While legislative and regulatory efforts had already been in progress prior, the widespread contagion has increased the urgency and speed of these efforts. Specifically, stablecoins has been an area of particular focus.
International Standard Setting Bodies such as the Financial Stability Board (FSB) and the Basel Committee on Banking Supervision (BSBC) have set initial regulatory standards on digital assets, in an attempt to drive consistent regulations globally. The Bank of International Settlements (BIS) on the other hand has been working on supervision and surveillance, deploying a project to allow central banks to effectively monitor the balance sheet of stablecoins.
Individual countries are also tackling the matter with the likes of the U.S. Congress introduced a stablecoin bill, and the Monetary Authority of Singapore (MAS) engaged industry players to develop a holistic regulatory framework on stablecoins. Eventually, more regulatory frameworks such as the one issued by the Hong Kong Monetary Authority (HKMA) requiring stablecoin issuers to be licensed for operations, and perhaps even regulations banning algorithmic stablecoins will be more commonplace.
Stablecoin Ownership, as a Percentage of Crypto Holdings
In a recent survey jointly conducted by Blockchain Research Lab, we examined the relationship between cryptocurrency holders and stablecoins ownership. Out of 427 crypto holders surveyed, 75% currently own stablecoins, 16% used to own stablecoins, and 9% have never owned any.
When breaking down stablecoin portfolio percentage make-up of the respondents who own stablecoins, the number of owners decreases as the stablecoin portfolio size increases. Majority of respondents (65%) hold a 0%-25% range of their portfolio in stablecoins, while 20% hold stablecoins in the 26%-50% range. The continued drop is seen as only 10% of respondents hold 51%-75% of stablecoins in their portfolio, and only 5% have a majority holding between 76%-100%.
Stablecoin Ownership: Most Commonly Owned Stablecoins
In the same survey, out of 392 stablecoin holders, it is revealed that the most commonly owned stablecoins are: USDT (80.3%), USDC (50%) and BUSD (50%). On the other hand, DAI is only owned by a small minority (18.5%) while other stablecoins like Frax (FRAX), Magic Internet Money (MIM), Gemini Dollar (GUSD), and Fuse Dollar (FUSD) have the lowest (6.5%) holding.
USDT is more popular than USDC and BUSD and remains the more commonly owned stablecoin due to its liquidity, with around $70.9 billion in circulation at the time of this writing. It was also one of the earliest created stablecoins (created in 2014), and remains one of the most popular trading base currencies on centralized exchanges.
This report was co-written by Zhong Yang Chan and Haziq Darwisy. Follow them on Twitter here and here.
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Curious to find out more about our previous research studies? Check out this one we did on crypto adoption in 2022.
Shaun is a Research Analyst at CoinGecko, who has lived and breathed crypto since 2017. Previously a community manager for Synthetix and RedFOX, he dived down the crypto rabbit hole to grasp a better understanding of the industry. He now spends copious amounts of time on Crypto Twitter and Telegram, searching for the next idea for CoinGecko Research. Follow the author on Twitter @ShaunPaulLee
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