ON–204: Stablecoins 💰

Coverage on USDT, USDC, DAI & FRAX.

Feb 9, 2024

ON–204: Stablecoins 💰

About the Editor: Spencer Noon is an independent angel investor. Looking to get in touch? DM him on Telegram or reply to this email and say hi 👋

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Stablecoins 💰

① Stablecoin Overview 💵

📈 Stablecoin transfer volume reaches $372B as USDT maintains dominance

  • In the realm of crypto stablecoins, market capitalization serves as a key indicator of stability and market dominance. Over the past year, Tether (USDT) boasted a staggering increase in market cap of over 41%, from $68.2B to $96.2B. Not all stablecoins have fared as well as USDT however, with USDC seeing a decline in market cap from $41.5B to $27.73B over the same period. Meanwhile, DAI, the decentralized stablecoin, has demonstrated resilience with a steady market cap hovering around $5B.
Source: CoinGecko
  • Stablecoin transfer volume remained relatively consistent at $160 - $180 billion weekly from October 2023 to March 2023. There's been a notable uptick in recent months however, as transfer volume reached a peak of $372 billion in January 2024 from $240 billion in November 2023.
Source: artemis.xyz
  • USDT’s dominance in the stablecoin market is evident in the number of addresses — there, USDT consistently comprises approximately 75% to 85% of weekly activity. USDC has shown growth in recent months, rising from around 10% to about 20% of wallet activity.
Source: artemis.xyz
  • 💦🔬 Tx-Level Alpha: This $36M swap from USDC to USDT last month on Uniswap V3 stands out as one of the largest in USDT's history. The trade’s underscores the dominance of USDT within the stablecoin market. Furthermore, amidst a notable increase in stablecoin volume over recent months, this transaction serves as a poignant indicator of the growing reliance on stablecoins for various crypto-related activities.

② MakerDAO 🏗️

📈 Maker Sees Record Annualized Revenues in 2023 on Back of RWAs

  • 2023 was a transformative year for MakerDAO in many ways. Most notably, Maker ramped up two real world asset (RWA) vaults - Clydesdale and Andromeda - which deployed the protocol’s assets into short duration US treasuries. This infrastructure connecting traditional assets to the on-chain world increased the resiliency of the Maker Protocol significantly, as it no longer has to solely rely on the crypto lending market which is highly cyclical.
Source: Dune Analytics - @steakhouse
  • The allocation into US treasuries was timely, as the fed funds rate climbed from near zero to 4.1% by the end of 2022, and then stabilized at 5.33% from August 2023 until the end of the year. Consequently, Maker’s revenues in 2023 rose to record levels on an annualized basis.
Source: Dune Analytics - @steakhouse
  • Prior to Maker’s asset allocation to US Treasury Bills, critics had dubbed DAI as “wrapped USDC” due to the substantial USDC backing. At its peak in July 2022, 85% of the assets backing DAI were stablecoins, primarily USDC. By the end of 2023, the protocol had substantially reduced its stablecoin exposure from 85% to 8%. The majority of collateral has shifted to US Treasury Bills (41%), ETH (27%), and lending protocols like Spark (14%, includes mostly ETH and stETH as collateral).
Source: Steakhouse (Internal)
  • 💦🔬 Tx-Level Alpha: This transaction shows a recent return of principal from the Andromeda vault back to the Maker protocol. Depending on the available liquidity for the overall protocol, users can easily deploy or return DAI to ensure the stability of the peg and the efficient use of capital. In this case, $36mm of US treasury bills were sold, and the proceeds sent to Galaxy trading for conversion into USDC. The USDC is sent back to the protocol, exchanged for Dai and used to pay down the debt owed by the vault.

③ Frax Finance 🏦

📈 Supply of dollar-pegged FRAX drops as Frax Finance's other pegged assets grow

  • The supply of FRAX, a dollar-pegged stablecoin, has dropped over 77% to $649.4M from a high of $2.9B in March 2022. The majority of the decrease comes from FRAX which is held in decentralized exchanges (DEXs). At FRAX's peak, users stored nearly $2B of the token in DEXs. Now there is $185M. The stablecoin has actually made significant gains in the past year in others areas — supply held in DAO treasures is up 185% to $95.5M in that time frame and the amount held in externally owned accounts (EOAs) has jumped by nearly a factor of five to $319M.
Source: Dune Analytics - @steakhouse
  • Frax has developed two stable assets not pegged to the US dollar — FPI is pegged to the US consumer price index (CPI) and has grown to a market capitalization of $84.5M since its launch in 2022. Frax also developed frxETH, a liquid version of staked ETH, which has a market capitalization of $772M.
Source: facts.frax.finance
  • Daily transfers of FRAX (black) hover around 500 transactions per day. The daily transfer amount (blue) hovers in the range of tens of millions, with occasional spikes past $100M.
Source: Etherscan
  • 💦🔬 Tx-Level Alpha: This is a $600,000 trade from USDC to FRAX on Uniswap V3. The minimal price impact comes from the USDC-FRAX pool's deep liquidity — $87.4M between the two assets. The pool is one of the most common avenues for trading FRAX.