Note : If I were to be idealistic, I'd likely have only DAI in this data-set. However, markets don't really care about my idealism. As much as there is controversy around USDT today - fact remains that it is a crucial component of the stablecoin ecosystem. I would appreciate it if conversations that stem from this piece does not go into "is tether a stable coin". My honest stance on the matter is that in the absence of verifiable audits, it is not.
Stable coins are what happens when crypto finds product-market fit. A pro-longed winter in 2018 combined with increasing scrutiny from banks around the world set the stage for adoption of stable tokens, which in turn has fed into the growth of the broader DeFi ecosystem. About a quarter trillion dollars had been moved on-chain through stablecoins when I began work on this piece (early November). However, little literature was available on who leads, to what extent and the nature of user-behaviour on these chains. What followed has been a month-long exploration of data from Token Analyst, Santiment and loads of procrastination as I struggled with the idea that currency kept in a central bank somewhere, represented as a token on-chain has seen the most traction in 2019. (Discounting DAI ofcourse). This is my attempt at summarising what has been going on in terms of volume and user behavior within stable coins.
If you need any indication of the fact that stable-coins and DeFi as a theme are here to say, a look at the most active networks should lay the case for you. Six of the top 20 networks, ranked based on average active wallets over 30 days are engaged with directly or indirectly with stable coins. Tether takes the lead here with 40,742 wallets (vs Bitcoin's ~750k). DAI is a distant second at 2752, followed by USDC and Paxos. This "trendsetting" done by USDT, and DAI's attempt to play catch up while stable coins issued by established incumbents (i.e. - Circle, Gemini) lag behind DAI is a common theme throughout this data-set.
The Year In Volume
Over $237 billion has moved through on-chain volume in stable coins over the course of the year. Much of this could be attributed to demand being driven by exchanges. While it is easy to jump to a quick conclusion that USDT's two chains (Omni and ERC-20) dominate volume, we have for the fact that the ecosystem to use them today is much larger than those for other chains. What could very likely cause a change in this scenario is if the market for DeFi instruments increases exponentially to a point where it surpasses that of exchanges. This would mean easier on-ramps, a suite of products that use stable tokens as a payments instrument and wallets that make it easier for users to handle stable tokens. Projects like Argent and Mosendo are paving the way towards making that happen.
USDC and DAI for instance very likely see more volume being driven by lending markets (eg: Juno, Dharma, Compound) and exchanging requirements (eg: Uniswap). It will be interesting to see how this evolves over the course of the year.
Much of the market today is dominated by USDT. In volume terms - that figure comes to ~80%. The oddity of an ecosystem that claims to work towards decentralisation relying on a centralised currency with no verifiable audits should not be missed upon us. In order to account for that - I decided to take a look at what a world without USDT would look like in terms of market share. Centralisation (and brand) still plays a role here. USDC managed to have close to half of the entirety of the market's share with 45%. DAI and Paxos were quite close to one another at ~20%. What did seem odd here was that GUSD, inspite of the brand and incentives that were released earlier in the year had 2% of volume without accounting for USDT, and 0.4% when accounting for it. The power laws at play here are brutal
DAI is the only stable-token that has actually grown in volume over the course of the year if I am to discount USDT. It's volume has seen a ~300% hike since January 2019. The introduction of multi-collateral DAI will very likely make this number jump further up. Its volume has also begun rivalling certain other centralised offerings such as GUSD. This is likely the earliest indication that a DAO run business, with an ecosystem around it can take on centralised alternatives and beat them in terms of metrics if additional products are built around it.
The adoption that exchanges offer combined with the speed that ethereum offers has over-thrown both Omni and all other prominent stable-coins combined. If anything, 2019 is the year USDT-ERC20 established itself as a lead, MakerDAO explored its tao and other projects languished (on basis of volume).
Volume however, tells only one part of the story. In order to understand what may be happening in these projects, one needs to explore the number of transactions each chain handles and the frequency at which it does. In order to do so, I looked at
- Number of active wallets on each chain
- Number of transactions on each chain
- Amount of volume contributed by each chain.
One way to understand this data is that as the number of transactions increase in a network, the average value of each transaction may reduce. This is with the understanding that as adoption increases, individuals may not store large amounts of wealth on a stable token but instead "use" it as a utility. A chain may have very high volume on it during its early phase (eg: Paxos) as those setting it up issue assets and move it to partners. However, if adoption does not kick in, the average transactional volume per address will remain high indicating that whales dominate the network. The graph below shows DAI compares with its peers. For a reference of scale, USDT handled a total of 20 million transactions between the ERC-20 and Omni variants over the course of the year (till November).
In conversations with a number of analysts about the average volume per user- there were two primary conclusions that routinely emerged. One was that the average volume on a chain being high for each user is an indication of the fact that confidence in it is high. By this logic, Paxos is likely a very preferred chain for institutional transfers as large volumes are moved on it. The other, is the utility argument that as retail adoption does increase - we will see a substantial dip in the average volume per wallet. For DAI and USDT this does ring true with an almost ~80% dip from their ATH figures to what they saw in August and September.
However regardless of how one looks at the data - the conclusion I have been coming to is the fact that whales still dominate both DeFi and dApps. And if an app or utility is unlikely to capture them early on in their growth cycle - they may likely not see much traction due to the small market that crypto today holds. Ideally, as this ecosystem evolves - the number of on-ramps increase, and the active wallet count does increase. If volumes remain stagnant (or grow slowly in comparison to user growth) the averages shown below should dip substantially. That is the idealistic scenario for 2020.
There are a number of things that could contribute to it. Some of them are
- Card linked crypto wallets being more common (eg: crypto.com)
- Mobile wallets (eg: Samsung)
- Browser wallets on the rise (Opera, Brave)
- On-ramps growing (eg: Local Crypto, Ramp.network)
What I did however find fascinating with the whole space is that the average transaction from each address on any given day was roughly around ~2. This figure was the highest on DAI, with it ranging all the way up to 5. To me this indicates that individuals still use stablecoins as a "volatility hedge" and don't see it as a transactional layer yet. The average transaction per wallet on dApps are relatively high even by Ethereum standards at ~4. My hunch is that if EOS and Tron based stablecoins were included in this number crunching exercise, this figure would have been much higher.. but that is for another day. DAI does have a higher average transaction per month count due to the fact that it is used for use-cases other than exchanging alone.
Personally, the question I have been asking myself has been what would it take to build a unicorn with DeFi and stablecoins at its foundation. If regulators catch up, and provide a stable framework for the growth of the space, many of tomorrow's Stripe, Paypal and Monzo remain to be built. That can only happen if retail adoption does pick up massively. Some of the markets I have been tracking (and linking stablecoin uses) to are remittance, the gig economy, digital asset insurance, income share agreements and DAOs. As much as exchanges are fascinating, when I study B2C apps and last mile solutions that blockchain based products have built - there is ample space for growth left. The likes of Bitpesa and Coins.ph have not only pioneered in frontier markets but also set the stage for a new generation of fintech businesses built on blockchain first to take the spotlight. A very early instance of this has been LocalEthereum - it caters to the world, with a very small team, has consistently seen volume growth and runs most of its function on a blockchain. I believe stablecoins could hypothetically do to money, what the cloud did to data. It paves avenue for extremely lean teams to cater to millions with smart contract enabled interactions. Whatsapp and Instagram were hyper-lean teams built to cater to customers in the mobile era. I am still looking for that "aha" moment where a consumer based app does the same with stablecoins for banking.
Until that magical start-up lands up in my network or I end up setting out to build it -here's some inspiration for you if you believe exchanges are the only ones that can drive stablecoin adoption.
If you are indeed one of them - make sure you slide into the DMs on Twitter. Would love to hear from you!