Ethereum Stablecoins Rise Amid Global Pandemic

With the recent Coronavirus outbreak, we’ve seen a severe liquidity crunch in the legacy financial system. As a result, risk-on assets like Bitcoin and Ether have suffered as global investors flock to cash. The age-old saying “cash is king” is especially true during times like these. 

In the world of open finance, stablecoins serve as one of the most useful tools for DeFi users in a time of uncertainty. They effectively act as the cash equivalent in our industry and are the best safe-haven asset we have as avid DeFi users. As such, we’ve seen a resurgence in stablecoins in recent weeks as crypto investors aim to protect their capital from the volatility and uncertainty of a global pandemic. 

A Brief Background on Stablecoins

Today, there are predominantly two forms of stablecoins: fiat-collateralized and crypto-collateralized. 

Fiat Collateralized

Stablecoins that retain a 1:1 peg by utilizing reputable financial institutions to hold an equivalent amount of fiat currencies in reserves.

Fiat collateralized stablecoins include: 

  • Tether ($USDT)* — Tether Limited
  • USD Coin ($USDC) — Coinbase and Circle
  • TrueUSD ($TUSD) — Trust Token Inc
  • Gemini Dollar ($GUSD) — Gemini
  • Paxos Standard ($PAX) — Paxos 


Stablecoins that require digital assets such as Ether to be held in smart contract escrow as collateral for the issuance of new, stable tokens in the form of an interest-bearing loan.

Crypto collateralized stablecoins include: 

  • Dai ($DAI)MakerDAO 
  • sUSD ($sUSD) — Synthetix (not included in this analysis)

The State of Stablecoins

Since the peak of the ICO bubble in late 2017 and early 2018, stablecoins have steadily amassed value into the asset class. The growth in stablecoins over the past few years has been unparalleled, especially as other major crypto assets stagnate. The driving reasons behind the surge? Likely two things: (1) high-yielding interest rates in lending markets and (2) uncertainty in crypto assets. 

In recent weeks, stablecoins have seen a surge in total supply as investors flock towards stability and other low-volatility assets amid the global pandemic. Almost all stablecoins have seen a spike in market cap (thus the circulating supply).

The biggest gainers for Ethereum stablecoins is Tether, who’s been migrating a significant amount of its supply away from Bitcoin’s Omni layer and Tron and over to Ethereum. As it stands today, over $3.6B in Tether is currently circulating on Ethereum – making it one of the largest tokenized assets on the smart contracting platform.

Ethereum Stablecoins via CoinMetrics

The second highest gainer this year is the only crypto-native stablecoin in our data set, Dai. Despite the fact that the MakerDAO system is experiencing some turbulence in lieu of Black Thursday, the system’s stablecoin has increased its market capitalization by 28.91% in 2020 alone. The permissionless stablecoin boasts a market cap of $51M after seeing a steep decline following the liquidation events. 

Data via CoinMetrics

In addition, despite Gemini’s GUSD only having a fraction of the market cap relative to its peers, the Winklevoss’ stablecoin has also seen steady growth this year, increasing from $3.7M to $4.4M in market cap or a 20.39% increase YTD. 

Lastly, one of the most notable surges in recent weeks has been Coinbase’s USDC. While it largely saw drawdown in market capitalization for the majority of the year, it recently spiked to reach nearly 20% in YTD growth, holding a sizable market cap of $625M. 

Taking a quick snapshot of the performance of the assets today, USDT has surged by over 51% in market cap – a massive increase in USDT’s circulating supply on Ethereum. This could largely be due to a combination of new USDT being minted as well as existing USDT migrating over to Ethereum. With that, TUSD is the only stablecoin in the field who experienced a drawdown in market cap this year, decreasing by 11.15% while Paxos Standard (PAX) remained relatively stagnant in terms of growth. 

Data via CoinMetrics

On-Chain Value Transfers

One of the more interesting metrics to look at with stablecoins is how much on-chain value they have processed on any given day. Given stablecoins act as either a Medium of Exchange (MoE) or a Store of Value (SoV), the value transferred indicates the amount of usage the stablecoin is experiencing. 

Naturally, the leading stablecoin in market cap is also a clear leader in on-chain transaction volume – likely due to traders flocking to the asset as a hedge against volatility. The only other two stablecoins processing a significant amount of value on Ethereum is USDC and DAI. Given their relevance in major DeFi protocols, like Compound, it should come as little surprise that they are transferring a significant amount of value relative to the rest of their peers. 

Data via CoinMetrics

The last metrics we’ll take a look at is the adjusted NVT Ratio. For those unfamiliar, NVT is the ratio of the network value (or market capitalization, current supply) divided by the adjusted transfer value. While this is predominantly used for L1 tokens (like Bitcoin and Ether) as a basic metric for measuring whether an asset is under or overvalued, it’s an interesting metric to look at in the lens of stablecoins. 

A stablecoin with a lower NVT could indicate that the asset is used more frequently than its peers, perhaps as a trading pair for liquidity, tangible usage as an MoE, or actively used within other DeFi applications and protocols (like Compound or dYdX). Data via CoinMetrics

With that in mind, we dove into the average NVT ratio for these assets year-to-date. Notably, TUSD boasts the highest NVT ratio relative to its peers. The high ratio along with its negative growth YTD signals that the demand for TrueUSD seems to be diminishing as users opt towards other stablecoins on the market. 

On the flip side, Dai has the lowest NVT ratio – showing that MakerDAO’s stablecoin is used rather frequently relative to its market cap and its peers. The rationale lines up as Dai’s is a native on-chain asset in addition to its ubiquity among most DeFi protocols. The second-lowest NVT ratio is Tether, one of the most widely traded assets on major exchanges across the globe. While it’s not used in DeFi protocols as much as Dai or USDC, Tether is still able to maintain a relatively low ratio relative to the other stablecoins in the field. 

Lastly, USDC has the third lowest NVT ratio in our data set of 9.1. USDC’s integrations in major DeFi protocols allows Coinbase’s stablecoin to see a moderate amount of tangible usage.

Key Takeaways

It’s clear that DeFi users and the crypto industry at large are flocking towards stablecoins as a safe haven asset amid the current state of uncertainty. The Coronavirus pandemic has forced the community to look towards safety as investors liquidate risk-on assets and opt-in towards stable assets to weather our the storm. 

Paired with attractive new yield opportunities through projects like Curve and iEarn, holding stablecoins has never been more enticing.

However, while these assets offer stability in the short term, due to the nature of their pegs, they tend to be poor long-term investments as the inflationary nature of fiat currencies devalues the assets over time. 

Given the current macroeconomic backdrop and how most central banks and sovereign states are exploring massive stimulus packages, it will be interesting to see how stablecoins perform in the next few months and years as quantitative easing (QE) takes hold of the markets and many fiat currencies experience significantly higher inflation rates than usual.  

It’s likely that as the epidemic wanes and the economic stimulus takes into effect, many investors may move away from high-inflationary assets (like fiat currencies and in turn stablecoins) and elect to put their capital into inflation-resistant, non-sovereign assets like Bitcoin, Ether, and Gold. 

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