Stablecoin Report: One Year Later

News and Analysis

ForkLog Consulting published an English translation of the report “Stablecoins: from electronic money on blockchain to a cryptocurrency basket.” The author of the report, Dmitry Bondar, told ForkLog about what has occurred on the stablecoin market since the publication of the Russian version of the text in question.

The report “Stablecoins: from electronic money on blockchain to a cryptocurrency basket” was published in Russian in August 2018. Since then, several reports on stablecoins in English have emerged. They were written by different authors and utilize different approaches, but their titles are somewhat similar: “2019 State of Stablecoins” and “The State of Stablecoins 2019.” Having read these reports, we decided to translate our report into English and publish it without changes and additions. First, some stablecoin projects change really fast and their descriptions given in our report record certain stages in their history. Secondly, the suggested approach to the study of stablecoins still remains relevant.

The market data used in the report covers the period of up to 30 April 2018. Since last spring, the market has developed rapidly, and some of the events of the “year of stablecoins” are of interest in the context of our report. This article, as well as the report, is based on the data on stablecoin market history provided by CoinMarketCap.

Traditional Electronic Money Still Prevails

The report published one year ago mentions a few dozen stablecoin projects – now there are over two hundred of them in our database. Some of them have become defunct while some others are currently nothing but statements of intention. However, we can safely say that there are over one hundred stablecoin projects being at various stages of development right now.

The number of stablecoins that have already been launched and now are tradable at exchanges hasn’t increased much, at least according to CoinMarketCap: we managed to find data on supply dynamics of 23 stablecoins. We classified those coins by their peg subjects and the type of their collateral. As of 25 March 2019, the stablecoin supply fell into those categories as described below:

In January 2019, the total stablecoin supply nearly returned to its peak, despite the USDT supply reduction of almost one billion dollars. Whereas previously the non-transparency of Tether only gave grounds for suspicion, now there is no doubt that part of USDT from time to time can be backed not by the US dollar but by the debt obligations of the borrowers of Tether Limited or Tether International Limited. New stablecoins were able to benefit from Tether’s credibility crisis and grab a piece of the market from USDT: for five months onward, the market share of Tether Dominance has been lower than 75%.

Electronic money on blockchain backed by US dollars still accounts for the lion’s share of the total stablecoin supply. USDT has acquired several new competitors in this segment, with USDC from CENTRE being the most significant of them all. The only important Euro-backed stablecoin that remains is Stasis (EURS), while EURT by Tether is not used.

The supporters of experimental private currency projects may find the situation quite unsatisfying: it is tough to call traditional electronic money, even on blockchain, the vanguard of monetary thought.

Even though many stablecoin projects strive to help the struggling Venezuelans, trading remains the main use case for stablecoins. USD-backed electronic monies on blockchain has the lowest volatility among other stablecoins and can be redeemed with national currency at its face value. It comes as little surprise that this kind of stablecoins unequivocally accounts for the largest daily exchange trading volume.

We used the velocity of exchange turnover to compare the extent to which stablecoins are implemented in the exchange trading. There are reasons to believe that the actual turnover figures of most exchanges are much lower than they claim they are, so the actual daily exchange trading volume as well as the velocity of exchange turnover of certain stablecoins can therefore be much lower as well.

With regard to electronic monies on blockchain backed by gold, the main event of 2018 was the launching of the Digix Gold Token (DGX) by Digix DAO, the first project to run an ICO on Ethereum blockchain. On the back of massive asset tokenization, one might expect the number of gold-backed stablecoins to increase, but there are few such tokens on the market as yet, and their own market share is small. Out of all tokens of that type present on CoinMarketCap, only DGX maintains relative price stability and increases the supply. The price history of other “gold” coins has very little in common with the market history of stablecoins.

Bad news for the fans of gold standard: there are Austrian-style banknotes backed by gold on the market, but the market has no desire to use them as money. As opposed to the stablecoins which are pegged to the national currency, they are not used on cryptocurrency exchanges as a quoted currency. E-commerce actors are not excited about the use of gold as a unit of account or for other monetary functions. The number of smart banknotes pegged to gold hasn’t increased.

Smart Banknotes

DAI is the only successful smart banknote, i.e. a stablecoin backed by the cryptocurrency collateral, to be governed by a smart contract. The ecosystem around this stablecoin is rapidly developing. DAI is traded with national currencies, bitcoin, top altcoins and other stablecoins at centralized and decentralized exchanges. DAI provides for credits and deposits, active attempts are being made to implement DAI in e-commerce, and the project has got a $15 million investment from A16Z. For now, Maker is the most successful DAO on Ethereum with the market cap of $700 million, with around 2% of the total ETH supply in the collateral that backs DAI.

Despite the DAI success, the number of stablecoins backed by cryptocurrencies hasn’t grown as rapidly as the number of traditional e-monies on blockchain. The smart banknote projects launched several years prior to DAI are now facing hard times. The DAI market kicked off at the peak supply of the main smart banknotes on the BitShares blockchain, including bitUSD (the first smart banknote, on which SBD, and GBG, and DAI form a family tree). Now, the supply of DAI is bigger than the overall supply of all the other smart banknotes combined.

In BitShares, Steem and Golos, a stablecoin is but one of the platform tokens, and the purpose of the platform is not contained in said token. Therefore its development and promotion is less important for those projects’ teams and communities than they are for the team and the community of Maker. However, the key to the success of DAI is not in this.

The actual key is in the collateral. Ethereum native token is second only to bitcoin, and the native tokens of BitShares, Steem are Golos blockchains are shadowed by new altcoins. Smart banknote projects like Synthetix (formerly known as Havven) use their system’s internal token rather than their blockchain’s native token as a collateral for their stablecoin. This type of collateral is also much less liquid compared to ETH.

The idea of a BTC-backed stablecoin seems obvious but there is no such thing yet. We hope that Money on Chain will bring good news about such tokens in 2019. Transition of Maker to a multicollateral system will allow one to issue DAI using WBTC as a collateral.

Stablecoins Without Full Backing

There have been a few big news in the segment of the stablecoins without full backing, i.e. fiat stablecoins, stablecoins with fractional reserves, and vouchers, but there is no progress on the stablecoins market of this type yet.

The most important news in this segment was the shutdown of Basis, the first fiat stablecoin project with big ambitions backed with $133 million investment from the top venture capitalists. Developing a concept of managing the supply of private fiat money by issuing and redeeming shares and bonds and to raise funds proved to be much easier than implementing it all in the existing legal framework.

The case of Basis has discouraged other projects that planned to issue securities to manage the supply of their stablecoin from using that model. Carbon who initially planned to create a system with a fiat stablecoin and a security called Carbon Credit, ended up creating traditional e-money on blockchain. Fragments changed its model to a single-token system using a fiat stablecoin, and changed its name to Ampleforth. To manage the supply of StableUnit, a stablecoin partially backed by cryptocurrency, the team planned to use shares and bonds. Although the team of the project didn’t report a change in their tokenomics, there was no news about launching this stablecoin either.

NuBits, the first fiat stablecoin, was another major loss in this segment. The stablecoin has not survived the rapid depreciation after the abrupt increase in supply. The project’s team and community are show almost no signs of life. Still, the Tinfoil Choice award goes to this message from the NuBits Telegram group chat:

Unlike the NuBits community, the Telegram chats of Minexcoin have more daily messages than the MakerDAO chat. Still, even MNX whose supply is growing by rewarding the Minex blockchain miners failed to keep the market price at the target level. The MNX price was supposed to grow at a predictable rate, but its actual performance has been negative for a long while.

Nevertheless, fiat stablecoins remain the vanguard of monetary thought. While Basis and NuBits are but an attempt to create a private counterpart of today’s national currencies, BitBay and Ampleforth have experimented with models that have no precedent in the history of money.

BitBay experiments with an approach that we can refer to as the “hodlers of last resort”. In order to drive the BitBay price upwards or to halt its decline, the holders can vote to freeze a portion of their balances to temporarily shrink the supply of BitBay. At the same time, unlike stablecoins in the traditional sense, BitBay does not have a fixed target price.

In Ampleforth, the reduction of the stablecoin supply will not be conducted in a traditional market way as seen in currency interventions, sale of shares or bonds, or parking. Ampleforth will proportionally cut the balances of all its holders to adjust the coin’s supply and drive its market price upwards. The Ampleforth holders won’t get reimbursed for the removed coins. On the other hand, when Ampleforth will need to increase the supply, the holders will receive newly minted tokens in a similar non-market fashion: proportionally to their balances and for free.

Search for Global Measure and Stablecoin Basket

A year ago, our report discussed such phenomena as the search for a global measure of value and the development of a stablecoins basket.

Global money is first of all a global measure of value. The global market needs a global unit of account. Cryptocurrencies claim the status of global money, and stablecoins are not an exception here. In the search for such global standard, stablecoins are pegged to SDR and to new baskets of national currencies and metals composed by stablecoin projects. Facebook considers backing a stablecoin with a basket of national currencies. Tiberius Technology Ventures offers a token backed by a basket of metals used to produce modern electronics.

These baskets may be attractive as a store of value, but their usage as a global measure of value seems unlikely at this stage. The US dollar still remains a global measure of value. The transition of the global monetary system to pegging national currency rates to SDR or another basket is not on the table. It is pegging national currency to a certain basket, as it was with ECU, that makes this basket a demanded standard of value. SDR did not become the foundation of a global monetary system, and that is why they weren’t recognized by the market, as opposed to the ECU. As for the volatile cryptocurrencies basket, the global ecosystem of public permissionless blockchains is too immature to have a need in such a basket in the capacity of a measure of value and money in general.

A stablecoin basket has better chances. When we were preparing our report, the only example of a stablecoin basket known to us at the time was StableSet basket that contained USDT and DAI. More stablecoin baskets have appeared since then.

Huobi has experimented with creating the HUSD token redeemable at face value with one of the four stablecoins (PAX, TUSD, USDC and GUSD). Pretty soon, the redemption at face value was cancelled and one could exchange HUSD 2.0 for the aforementioned stablecoins only at the average-weighted market rate. CementDAO is developing a stablecoin aggregator; Reserve plans to make a transition to backing a stablecoin by a basket of tokenized assets; and Neutral and dForse have reported that they are developing stablecoin baskets.

Thanks to these projects the issue of a stablecoin basket is getting more attention. Still, there are several very important questions that remain unanswered in this area. In particular, the development of the stablecoin basket segment implies the need to research the interchangeability of stablecoins in general and stablecoin baskets in particular.

Two Business Cases: Securities and Fees

In conclusion of this article, I would like to draw your attention to two questions related to the commercial everyday work of stablecoin projects. The first is about redesigning the second token after its initial distribution. The second is about additional fees for the use of the stablecoin. Let’s begin with the first one.

If token ownership generates income in the form of transaction fees, seigniorage, interest rate or dividends, then the token in question is a security. Projects that raised funds by selling security tokens didn’t always obtain all the necessary official permissions. Probably, that is why Maker and Chronobank changed the design of their second tokens (MKR and TIME, respectively) after their initial distribution. Now these tokens do not grant their holders a share of the fees charged from the respective stablecoin users. Considering the stiffening of cryptocurrency regulation, the legal aspects of such changes will inevitably become subjects of discussion.

Stablecoins clashing with the harsh reality of regulation of securities’ issuance and circulation may lead to different results. Some shut down the project, some others redesign their stablecoin, some others change the design of the second token, while others prepare to issue the securities in compliance with the current statutory requirements. Reserve, for instance, belongs to the last group: Reserve Network Token (RSVN), that replaced Reserve Share in project’s tokenomics, probably will be traded as an officially registered security.

The problem of charging additional fees is that the stablecoin user must pay the fee not only to the miners (in the selected blockchain’s native token), but also to the stablecoin project (in the stablecoin itself).

Carbon uses metatransactions to allow payment of Ethereum miner fee in CUSD rater than in ETH. It improves user experience but doesn’t solve the problem of additional transaction fees. Regardless of the token in which the fee is charged it is the user who incurs additional expenses. Off-chain transactions allow users to avoid these additional expenses, but it is unlikely that a stablecoin project whose business model is based on charging additional fees would be happy about it. The same goes for the holders of tokens similar to DGD whose source of income is the additional fee for using the stablecoin.

Fees influence the fungibility of stablecoins. Stablecoins may differ in fees charged for their issuance, use, and redemption. The conditions of issuance, circulation, and redemption of stablecoins may be different as well. The same stablecoin launched on several blockchains may not be fully fungible for technical, economic, or legal reasons.


At this point, it is traditional private credit money in the form of e-money backed by national currencies that prevail on the stablecoin market. It is no wonder that e-monies on blockchain are that successful, considering that they are a familiar and understandable instrument. Cryptocurrencies and stablecoins in particular, however, are something more than just a PayPal on blockchain.

There is new experimental money in this market. Saying that initially bitcoin was traded as a collectible, one actually means that initially bitcoin was but an experimental private digital currency. This digital thing had a symbolic value of a unique experiment, that, when owned, gave a sense of participation in the crypto-anarchic social act. Bitcoin became a thing that more or less functions as money way later.

One of the developmental paths of bitcoin as a basic concept has been the idea of a cryptocurrency with a stable exchange rate. Wei Dai expressed his regrets that he didn’t try to dissuade Satoshi Nakamoto from the idea of inelastic bitcoin supply that leads to the high price volatility. To enhance the price stability, bitcoins can be used not directly but “wrapped” as a means to back a stablecoin. This is the direction where smart banknotes are moving. We have reasons to expect the first smart banknote secured by bitcoin to emerge in 2019.

However, “wrapping” bitcoin is not the only way here. Another way is less conservative, less predictable and, in addition, is not popular among bitcoin maximalists: reinventing bitcoin. Single-token systems of fiat stablecoins are but an attempt to do just that. It is the logical continuation of experiments with the creation of a decentralized digital cash system. This segment has the greatest potential of generating the most interesting news in our opinion.

The stablecoin market is already five years old, but it was only in 2018 when significant competition has finally emerged. We examined the market history of just twenty stablecoin projects. Even if just half of all stablecoin projects is launched, a hundred stablecoins will be competing on the market. The research of the market in question implies, among other things, the access to reliable data on stablecoin exchange trading and on the ecosystem developing around them. A publicly available information source fully meeting those requirements is yet to come about.

Dmitry Bondar

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