Stablecoins is expanding its influence on centralized trading and niche protocols. Tether (USDT) remains the major source of liquidity. But in 2024, more new projects issued their assets and started building their supply.
The emergence of several leading L1 solutions means each picked a different stablecoin, either existing or newly created. There are three types of stablecoins on the market, each with its specific features and risks.
Dollar-backed stablecoins are the most common, featuring USDT and Circle. Collaterals of crypto tokens back the other types, usually requiring a higher value locked to protect against volatility. The third type is algorithmic stablecoins, where the price level is constantly recalculated based on a smart contract. Those include DAI, USDD, Frax, AMPL, and others.
Also read: Native Stablecoins Swell on Sui as Agora Adds AUSD Stablecoin to Network
Generating algorithmic stablecoins in niche DeFi projects is common and the most risky. Niche DeFi projects often generate algorithmic stablecoins; there’s the risk that the platform will inflate its own value and use it to print more stablecoins. Algorithmic stablecoins of this type can work if the underlying asset is predictable, and the project avoids inflating the supply.
Which Stablecoins Are Growing?
Recent research shows Aave’s GHO is the fastest-growing stablecoin, expanding its supply by 38.1% every month.
GHO is starting from a very low basis and is just starting to build a meaningful supply. The asset was launched in August 2023 and took months to achieve parity with the US dollar. GHO is over-collateralized with crypto and is part of the most numerous type of stablecoin.
As of June, there are still just 1.3M GHO, mostly used in the decentralized ecosystem of Uniswap, Curve DAO, and Balancer.
Aave creates GHO to be over-collateralized by all assets deposited into the Aave protocol. In 2024, the supply and generation of GHO will thus also reflect the health of Aave. The current amount of GHO created is conservative compared to the total value locked (TVL) of Aave, which doubled in the past two quarters to more than $12.6B.
Ethena lined up among the most active minters of stablecoins, in this case its native USDe. Recently, the supply of USDe surpassed stablecoins minted on the Solana blockchain. Ethena also offers staking for the newly created tokens.
More than 3B USDe have been minted, with some locked for high-return staking. USDe is also spreading among decentralized markets, including Curve Finance and Uniswap. USDe, however, remains more limited to the Ethena ecosystem in combination with the ENA token.
Ethena’s USDe is a synthetic asset that is not backed by fiat. It has partial crypto collateral and is partially backed by short futures positions, thus having a different risk profile.
USDe is user-generated and issued only after whitelisted, verified users deposit another asset to Ethena. Other users can buy USDe through a DEX, with no required verification. USDe has an additional reserve fund made up of USDT, USDC, ETH and other approved assets.
Older Stablecoins Spread to New Networks
Stablecoin growth also comes from the leading, older stablecoins spreading to new networks. The Ethereum network is only responsible for half the growth opportunities. The spread of stablecoins also underlines the most active L1 alternatives to Ethereum.
Avalanche grew its supply of USDC by 31% in the past month and now carries $1.79B of stablecoins. USDC makes up for about 50% of that supply.
Also read: UK Regulation to Accommodate Stablecoins and CBDCs
Circle’s USDC also grew on Optimism and Polygon, two of the leading Ethereum scaling solutions. Stablecoins moving to those protocols underline the general trend of abandoning the Ethereum main net for faster, scalable and cheaper transfers. The speed and activity of DeFi rarely allow for the slower, more expensive spending of stablecoins on the mainnet.
USDC reached a supply of $32B, still less than 30% of the total USDT supply, but gaining importance for the wider DeFi ecosystem.
Cryptopolitan reporting by Hristina Vasileva
