6 Stablecoins That Are Driving the Sector’s Two-Year High in Market Capitalization

The market cap of all stablecoins has grown 30% this year from $130 billion to nearly $170 million, a more than two-year high that reflects the public’s growing enthusiasm for cryptocurrencies, since they show users’ willingness to hold money onchain instead of in a traditional bank account.

“Globally, there is a growing adoption of digital assets as part of the broader trend toward digitization in finance,” said Paolo Ardoino, the CEO of the largest stablecoin provider Tether, in an email to Unchained. “This adoption is driven by a combination of the increasing need for efficient cross-border transactions, the desire for financial inclusion, and the demand for alternatives to traditional banking systems, especially in regions with unstable fiat currencies.”

Stablecoins are tokens that can be used onchain and are designed to stay pegged to fiat currency in an effort to minimize volatility. The lack of volatility means they are often used for routine transactions. While each stablecoin aims to maintain its peg to a specific fiat currency such as the U.S. dollar, not all stablecoins are designed to uphold their peg in the same way. Some are backed by cash and cash equivalents, while the mechanisms of others are dependent on crypto assets and short future positions.

Since stablecoins are designed not to move much in price, their market cap is a good proxy for demonstrating how large the crypto ecosystem truly is. The market cap shows “how many people are actually happy to have money, [or rather] the equivalent of money, onchain as opposed to in their bank account,” said Aurelie Barthere, principal research analyst at blockchain analytics firm Nansen.

Here are the top six stablecoins by market cap that are helping drive the current 2024 crypto cycle:

1. USDT

Market cap: $118 Billion

Year Started: 2014

Tether issues five different stablecoins of which its USDT offering, which tracks the US dollar, is the largest, taking a nearly 70% share of the entire stablecoin market, Nansen data shows.

Tether’s USDT went at the beginning of 2023 from a 48% share of total stablecoin market cap to 70%, “a huge gain” Nansen’s Barthere said.

Tether maintains USDT’s peg to the US dollar by holding fiat currency. According to its June transparency report, Tether’s reserves are largely composed of U.S. Treasury Bills, money market funds, and overnight reverse repurchase agreements.

Even though Tether has quarterly attestation reports detailing the reserve backings it holds, the firm has yet to have an official audit, a fact that has drawn significant criticism. Last December, S&P’s inaugural stablecoin stability assessment gave Tether a score of 4 on its ability to maintain its peg to a fiat currency, the second-worst possible score.

The Tron network holds just under 50% of the total USDT supply, followed by Ethereum at 39%, data from DefiLlama shows. Despite Ethereum trailing Tron, the average USDT transaction size on Ethereum is much larger than on Tron — $38,510 on Ethereum, compared to $6,550 on Tron, according to onchain intelligence platform Artemis.

2. USDC

Market cap: $33.8 Billion

Year started: 2018

Circle’s flagship product reached an all-time high in market cap of $55.6 billion in July 2022, but proceeded to shed more than half of that by December 2023.

USDC’s decline in market cap came largely from the impact of USDC depegging in March 2023 when two federally insured members of the Federal Reserve System — Silicon Valley Bank and Silvergate Bank — shut down. Circle had previously held a significant portion of USDC reserves in cash in those banks.

Circle’s position as an important player in the stablecoin ecosystem is also related to the firm’s relationship with Coinbase, the largest crypto exchange in the US. The technology underlying USDC was jointly developed by Coinbase and Circle. The exchange also acquired an equity stake in Circle.

Coinbase is the largest holder of USDC on Base, the layer 2 network incubated by the exchange. Nansen’s data shows 20 out of the top 21 USDC holders of Base, belong to Coinbase, with each holding $101 million worth of USDC. In the first half of 2024 ending on June 30, Coinbase generated roughly $437.8 million in revenue from stablecoins, more than 14% of the firm’s total revenue of about $3 billion, according to Coinbase’s latest quarterly report.

Two-thirds of the USDC supply lives on Ethereum, according to DefiLlama, while the average transaction size on Ethereum is $85,020, per Artemis’ data.

3. USDS (formerly DAI)

Market cap: $5.3 Billion

Year started: 2014

On Tuesday, DeFi heavyweight MakerDAO rebranded to “Sky” and announced new versions of its stablecoin DAI and governance token MKR, which have a combined market cap of more than $7.1 billion.

Sky is different from both Tether and Circle because the stablecoin issuer is managed through a decentralized autonomous organization where holders of the protocol’s governance token have a say in the direction of the platform. Neither Tether nor Circle have governance tokens. USDS is the largest decentralized stablecoin by far.

The changes are part of the protocol’s “Endgame,” the codename for a major overhaul of the stablecoin issuer begun in 2022. The implementation of Endgame, which includes the rebrand and revamp of the protocol’s ecosystem tokens, is intended to make the advantages of DeFi accessible to a broader audience, beyond early adopters, per a governance forum post.

Holders of DAI, which is backed by a number of cryptocurrencies such as ether (ETH) and wrapped bitcoin (WBTC), can convert their DAI to USDS, “the upgraded stablecoin of the Sky Ecosystem.”

One controversial element of the conversion from DAI to USDS stems from how the protocol’s new stablecoin has the potential to have a freeze function, which empowers authorized parties to decide who can use, possess, and interact with the token versus who can’t. Circle and Tether’s stablecoins both have freeze functions.

According to a May governance post, while the freeze function won’t be implemented at launch, the governance members can vote on whether to implement the freeze function in the future. “The future freeze function is generally expected to follow rule of law from jurisdictions where Maker needs a high level of certainty that the legal system will enforce recourse against RWA collateral,” the post stated.

Ninety percent of DAI currently sits in Ethereum smart contracts, in which the average transaction size, per Artemis, is about $1.69 million, suggesting that DAI is not being used by retail crypto users.

4. USDe

Market cap: $2.9 Billion

Year started: 2024

In less than a year, Ethena’s synthetic dollar product has already attained a market cap of $2.9 billion. USDe is a new type of stablecoin that achieves its dollar peg by using derivatives — namely short future positions. Ethena’s USDe maintains its peg to the US dollar by using staked ETH, SOL and BTC as collateral while employing delta hedging strategies in the derivatives market to offset price volatility and ensure stability.

This means that for every dollar that ether drops, Ethena loses $1 from its long position but makes $1 in its short position, which keeps the U.S. dollar value of the collateral stable.

Ethena’s initial explosive growth emerged from crypto users’ vying to earn high yields, which at one point was 37%, driven by enthuasiasm and the beginning of a bull market. The yield for staking Ethena’s USDE comes from rewards in staking ether, as well as the funding rate earned by Ethena from traders for opening short derivatives positions.

Ethena’s growth has since slowed significantly, with its market cap shrinking 20% from its peak of $3.6 billion in July as Ethena’s yield for staking USDE has slumped to 4%.

For the majority of the year, funding rates have been positive, helping Ethena offer an attractive yield. However, data from CoinGlass shows that there were multiple days in August of negative funding rates, meaning that Ethena has had to pay traders who went long, reducing Ethena’s yield and attractiveness.

USDE’s average transaction size on Ethereum currently stands at $122,460, more than Paypal’s PYUSD, Circle’s USDC, and Tether’s USDT, but not MakerDAO’s DAI.

5. FDUSD

Market cap: $2.7 Billion

Year started: 2023

First Digital Group, a crypto custodian firm based in Hong Kong, saw its stablecoin begin the year with a market cap of $1.8 billion, but it has since grown almost 50% to nearly $2.7 billion. FDUSD is backed by cash and cash equivalents where the assets are held in accounts of regulated financial institutions in Asia.

FDUSD’s growth has been aided by a Binance promotional offering. Between Dec. 2013 and April 2024, Binance offered zero-fee trading for six FDUSD spot and margin trading pairs.

While more than 97% of FDUSD sits on Ethereum, the remaining portion of the stablecoin’s supply resides on Binance Smart Chain. Meanwhile, blockchain data curated by Etherscan shows that the top eight holders of the stablecoin all belong to Binance and that they collectively possess nearly 98% of the entire supply.

CoinGecko shows that the trading pair BTC/FDUSD on Binance has the highest trading volume in the past 24 hours at $1.9 billion, with BTC/USDT on MEXC and Binance as the second and third-place trading pairs.

6. PYUSD

Market cap: $1 Billion

Year started: 2023

PayPal, the fintech heavyweight that owns peer-to-peer payments platform Venmo, saw its stablecoin PYUSD’s market cap grow from about $234 million to $1 billion, a more than four-fold increase. PYUSD’s growth took off when PayPal rolled out PYUSD on Solana in June 2024, after initially launching on Ethereum in Aug. 2023. This August, the amount of PYUSD on Solana exceeded the total amount residing on Ethereum and now accounts for 64% of its total share.

Onchain data shows that over 50% of PYUSD is serving as collateral on lending protocols and quote pairs on decentralized exchanges, per CCData’s report published on Wednesday. One example is the Solana-based lending protocol Kamino Finance, where users can park their PYUSD into the protocol for a 9.94% annual percentage yield.

“Over 45% of all circulating $PYUSD supply is deployed into Kamimo,” Kamino said on X on Monday.

The average PYUSD transaction size on Solana is $8,700, while the figure is $71,120 on Ethereum, data from Artemis shows.