Stablecoins Used by Nearly All Market Participants
Even though cryptocurrency is touted to be more efficient than legacy currency systems, it appears most cryptocurrency traders can’t help but peg their trust to fiat or its digital look-alike. This assumption holds true as a report by Binance Research indicated nearly all market participants use stablecoins.
Stablecoins are best known for their hedge against volatility in the cryptocurrency markets and though in a few cases are used as a medium of exchange, their most widely adopted use case is in a crypto-to-stablecoin trade environment. The level of adoption, however, especially the most used types – stablecoins backed by fiat – do reveal the strong industry ties to fiat systems.
According to Binance Research, while sampling its institutional and VIP clients, it observed that “90% of the clients use USD as the benchmark currency”, which further supports their initial theory on the adoption potential of stablecoins backed by USD. The report further suggested “USD stablecoins and USD-denominated platforms are the leading forces of the cryptocurrency and digital asset industry”.
As a correlation between the level of adoption of stablecoins and fiat-dependence, a subtle observation pointed out in the research indicated a large number of the respondents had prior experience in the financial industry exclusive of the digital asset industry. At the time of the study, more than half of the market participants sampled, either had one foot in the equity market or the foreign exchange market, which evidently supports the gravitation towards fiat-dependency.
Comparatively, the traditional financial market has well-established hedging strategies in the form of offsetting stock positions, options, futures, and bonds, to reduce exposure to market risks. On the other hand, while the cryptocurrency industry may have mirrored a few of these market derivatives – which for the most part are largely accessible by large investors and those rather conversant with the financial market principles, adoption of fiat-backed stablecoins by all class of investors has been somewhat sporadic with USDT taking the lead.
Circulating Supply of stablecoins since June 8th:
GUSD: -16 million
PAX: -36 million
TUSD: -42 million
USDC: +20 million
Tether: +280 million
— Giancarlo The Tether Whisperer (@CasPiancey) June 27, 2019
With respect to the recent bull-run which dazed many in the industry, as flagship cryptocurrency Bitcoin touched new highs in over 16 months, some have opined that the mysterious uptrend may not have been without the help and from an uptick in the recent interest stablecoins.
The renewed interest in the bull-market of crypto may seem a mystery to some, but perhaps it had to do with the catalyst brought by Libra, Paxos, and other stablecoins in the market!
— Paxos (@PaxosGlobal) July 2, 2019
Adoption of other types of stablecoins – those backed by commodities and by other forms of cryptocurrencies, don’t seem like the go-to-choice for investors in times of strong market movements. As a matter of fact, a recent report indicated only 30% of all stablecoins are currently operational, with the demise of a majority resembling cryptocurrency pegged to physical commodities such as gold and other precious metals.
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Manuel, Khareem Sudlow