C-C #86: Stablecoins Go Institutional

May 7, 2020
Mattison Asher

Takeaways:

  1. Stablecoins have seen serious adoption since the Corona crash
  2. Stablecoin projects such as Libra and USDC are presenting themselves as legitimate institutional options
  3. MakerDAO moved to have DAI be partially backed by USDC, which might make it more appealing to institutions

Adoption for stablecoins has skyrocketed

There have been some significant developments in the stablecoin market as of late.

Just as a quick refresher, stablecoins are digital assets that closely track fiat currencies such as the USD.

Not only has stablecoin adoption surged since the corona crash, but Libra has now hired their first CEO and the consortium that backs USDC (a Coinbase/Circle stablecoin) is now seeking out a CEO of their own.

Additionally, previously innovative projects that utilized novel crypto native systems to ensure their stablecoin remained pegged to the dollar have now opted to partially back their assets with other stablecoins that utilzie dollar reserves.

Stablecoins are clearly attempting to become more appealing to institutions as they have seen the beginning phases of non-retail adoption.

Growth in Market Cap

Stablecoin Marketcap

Aggregate stablecoin market cap skyrocketed in the aftermath of the Corona carnage. In fact, the total market cap for all stablecoins is quickly approaching $10 billion.

The green in the above graph represents the stable coin Tether, which clearly dominates the stablecoin market. What is interesting to note from this graph is that the market cap of stabelcoins has continued to rise alongside BTC in the past month.

This rise indicates that stablecoin demand hasn’t been driven just by crypto traders hiding in those assets during digital asset market volatility, but is rather indicative of genuine growth from new users.

Most likely, this new growth of users stems from the increase in global demand for the USD because of a dollar shortage as a result of the international trade system being hindered by the Coronavirus.

Stablecoin projects look to establish themselves as institutionally legitimate

Moreover, several large stablecoin projects are looking to build institutional legitimacy through hiring respectable CEOs. Just today, Libra named Stuart Levey as CEO.

Previously, Levey was Chief Legal Officer at HSBC.

Prior to being Chief Legal Officer, Levey served as the Under Secretary for Terrorism and Financial Intelligence for the US Treasury Department under the Obama administration. It doesn’t get more institutional than Mr. Levey!

Libra isn’t the only one trying to find their front man/woman who will impress the establishment. The consortium behind USDC is now also looking for a new CEO. Just like Libra, I believe this consortium will find someone with genuine institutional appeal.

MakerDAO pivots to having DAI stablecoin backed by USDC

USDC Price Chart

After the MakerDAO network and their stablecoin DAI was seriously threatened during the March Corona crash, they decided that it would be best to allow DAI to be backed by the stablecoin USDC.

This move is quite ironic since DAI was supposed to be the non-dollar reserve stablecoin option. Now that USDC partially backs DAI, DAI is now transitively backed partially by the USD.

I can understand this move, as it brings more stability to the MakerDAO system.

MakerDAO is under serious legal and market pressure (as can be seen from the price chart above, especially around March 12th), but it will definitely draw the ire of true crypto believers who are looking to create an alternative, not replicative, financial system.

By allowing DAI to be backed by USDC, MakerDAO is clearly taking a step away from the decentralization ethos towards being more institutionally friendly.

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