ON–121: Stablecoins (Part 2)

Coverage on Frax and Tether.

May 13, 2022

④ Frax

📈 FRAX stays within <$0.01 of $1 peg

  • Amidst the recent backdrop set by the unraveling of Terra’s ecosystem, new lows in market confidence towards stablecoin projects from the break in UST’s price peg, and the hyperinflation of LUNA’s token supply that ensued from the triggering of UST's stability mechanism, Frax's stablecoin model has demonstrated its resilience by maintaining its peg ( +/- $0.01 of the $1 peg target). This strength showed not only through recent events, but since its genesis back in December of 2020.
Source: Frax App
  • Core to Frax’s stability mechanism is its utilization of Curve pools and FXS to incentivize deep liquidity. With just under 1b of FRAX liquidity in the FRAX+3CRV pool, and the total supply of FRAX currently around 1.7b FRAX, slippage for a sell order that’s <=58% of the FRAX supply would be <$0.01.
Source: Curve Frax+3CRV Pool
  • On May 9, Frax - via FXS1559 - printed one of the largest FRAX mints / FXS buybacks ever, distributing 40.6k FXS to veFXS holders; however, unlike its current implementation, the initial FXS1559 was designed to burn the newly purchased FXS, serving as an alternative mechanism for distribution.
Source: Dune Analytics - @0xouija

⑤ Tether

📈 USDT briefly loses peg, $2b redeemed, $176b in volume

  • While everyone watched the downfall of Terra’s UST, the attention also moved to other stablecoin projects. USDT has a controversial history, and it is once again coming under scrutiny when tested by a big market move. While USDT usually has daily volume between $40b and $60b, it has been elevated to $100b+ since May 10th.
Source: Coingecko
  • USDT briefly lost its peg on May 12 and provided arbitrage opportunities as it was priced differently across exchanges. For instance, USDT kept its peg on Binance while it briefly traded at $0.90 on Kucoin.
Source: Kucoin
  • To calm the panic, the company announced that Tether Continues to Honour All Redemptions: “In the last 24 hours alone, Tether has honoured over 300m USDt redemptions and is already processing more than 2bn today”. The Tether CTO keeps tweeting about this.
Source: Coingecko
  • There was also some big movements on exchanges in the last couple of days. USDT held on Binance is decreasing while Bitfinex and Curve.fi are accumulating lots of USDT.
Source: Nansen

The 3pool TVL on Curve is also down 33% in 5 days, from $3b to $2b

Source: Dune Analytics - @1ronman
  • The 3Pool has mostly been drained of USDC and DAI; as of writing, it has 8% USDC, 8.5% DAI, and 83.5% USDT. This data shows a clear preference for DAI and USDC by the original liquidity providers.
Source: Dune Analytics - @1ronman
  • Most of the USDT supply is on the Ethereum and Tron blockchains, with close to 40b tokens issued on each network. On Ethereum, the first 34 addresses belong to exchanges and DeFi protocols; they hold around 40% of the total supply. The first 100 addresses hold close to 50% of the supply.
Source: cryptorank.io
  • On Nov 3, 2021, $930b of volume was cleared. That’s 10-20x more volume than usual. BTC reached its ATH only 7 days later.
Source: Nansen