In recent days, the market scale of stablecoins has increased by nearly 3 billion USD.

To speak in simple words, a stablecoin is a digital currency designed to maintain the price parity with a certain “stable” asset.  Stablecoins can “anchor” their value with fiat currencies, gold, other digital currencies, or exchange-traded commodities, etc. At present, there are at least nine major stablecoins in operation around the world, such as USDC, USDT, and BUSD.

For example, USDC stablecoins can be exchanged for US dollars at a one-to-one ratio through platforms such as Coinbase and Circle. Coinbase currently supports a non-currency-backed stablecoin USDC. Like many other stablecoins, USDC currently runs on the Ethereum blockchain.

Stablecoins like USDC are not affected by the volatility of non-anchored cryptocurrencies such as Bitcoin and Ethereum, while inheriting some of their most powerful features:

* Open, global, anyone on the Internet can access 24/7
* Fast transfer speed, cheap and safe
* Digital native internet and programmable

Nowadays, the main purpose of stablecoins is to serve as a safe haven to avoid fluctuations in cryptocurrencies, and as a bridge for value transfer between exchanges. In addition, the application of stablecoins in global commerce, traditional financial settlement, and as collateral for decentralized finance is also emerging. Therefore, as Bitcoin and Ethereum prices have been experiencing historic fluctuations in recent days, the stablecoin ecosystem is also experiencing substantial growth. According to CoinMetrics’ data, as of April 20, the total market value of stablecoins has risen to an all-time high of more than 9 billions of US dollars, and  USDC is accounting 730 million USD of that 9 billions. ⇓

While being driven by the typical hedging of stablecoins benefiting from the volatility of BTC, there may also be macroeconomic forces driving demand. According to a report on the Wall Street Journal entitling with “The World’s Desire for the US Dollar” in March, global investors are selling their assets and paying large sums of money to exchange the local currency to US dollars. During the financial crisis, the demand for the US dollar has always increased in the case of “escape to safety”. As a representative of dollar demand, the DXY dollar index has recently surged to a multi-year high. (DXY is a measure of the exchange rate of the US dollar against a basket of currencies such as the Euro, Yen, and Pound.) ⇓

Stablecoin is an innovative mechanism for global investors seeking US dollar exposure. For example, USDC can be transferred to countless personal cryptocurrency wallets or global exchanges 24 hours a day at the lowest costs with a minimum fee. USDC does not have any concept of national boundaries, and anyone in the global cryptocurrency ecosystem can obtain and hold USDC. Since the beginning of March, the market value of USDC has soared from a record high of around 457 million US dollars to 700 million USD. ⇓

Moreover, USDC’s on-chain value transfer has also recently hit a record high of nearly 400 million US dollars per day. Since its creation, USDC has also transferred more than $ 26 billion in on-chain funds. One possible explanation is that the bridge of USDC value transfer between global exchanges is rapidly developing. (In this context, USDC is currently trading on many centralized and decentralized exchanges around the world). ⇓

In the entire cryptocurrency ecosystem, stablecoins have made significant progress in the past two years in terms of relative transfer value. In March, the daily relative transfer value of stablecoins reached 40% comparing to Bitcoin and Ethereum, the two largest non-anchored cryptocurrencies. It is worth noting that although the original transfer value of Ethereum has dropped significantly compared to Bitcoin, many stablecoins are currently running on the Ethereum blockchain. ⇓

Compared with traditional banking business, stablecoin maintains various advantages. Setting up a cryptocurrency wallet to transfer stablecoins (such as through a self-hosted Coinbase wallet) is much easier than setting up a bank account. Especially for people outside the United States, the accessibility of cryptocurrency software and the popularity of stablecoins in the future may prove that stablecoins are very valuable to people without bank accounts. Or according to the BIS:

“In principle, retail stablecoins can implement multiple payment methods and can serve as a gateway to other financial services. In this way, they can replicate the role of trading accounts, which are stepping stones to achieving broader financial inclusion “.

In addition, a new category of financial services is called “DeFi”, that is, decentralized finance has been created so that stablecoins can be borrowed, lent out, and used as collateral programmatically. Smart contract lending protocols, such as Compound, dYdX, Nuo and Aave. At present, the annual interest rate range of USDC is between 0.44 and 2.36% (as of April 1), and the historical annual interest rate is higher. ⇓

Regarding the evidence of the use of these stablecoins for different purposes on the chain, we can compare the daily active addresses. By measuring the daily active address, we found that USDT is the leader among all stablecoins. The daily active addresses of Sai, USDC, Dai, and Pax dollars have been hovering around 3,000, while USDT has a clear lead of 50,000, and GUSD (Gemini), HUSD (Huobi), and BUSD (Binance) with daily active addresses less than 100. ⇓

Furthermore, as evidence of the use of stablecoins in global commerce, we can analyze the USDC on the Coinbase Commerce platform. The data below shows that Coinbase Commerce has processed more than $200 million in transactions, allowing thousands of merchants around the world to accept cryptocurrencies in a completely decentralized manner. Through Commerce, USDC has risen slowly compared to other acceptable cryptocurrencies in the past six months, but it has indeed attracted the attention of some other cryptocurrencies. Moreover, on January 14, 2020, USDC’s daily transaction volume reached 20%. ⇓

Due to the fundamental advantages over traditional payment systems, the viability of stablecoins in global commerce may become higher and higher. As another emerging use case, a stablecoin prototype like J.P. Morgan’s JPM coin may prove that the stablecoin is viable for traditional financial settlement because it “can realize instant payments between institutional customers.”

Meanwhile, the soaring market value and the transfer of value on the chain are both indicating the intended use of stablecoins – that is, as a hedge against cryptocurrency fluctuations, and as a bridge between exchanges.