25 August 2023

Hello,

The markets continue to play the way it wants… not the way we like.

Bitcoin (BTC) is consolidating near $26,000 while a rally back to key resistance at $28,400 is likely in the coming weeks. With the US Fed Chairman expected to speak later today on the macro-economic trends, we are likely to see a reaction either way leading into the weekend.

The overall crypto market cap is sitting just about $1 trillion. However, ~12% of those are in stablecoins. In our Hot Take today, we cover the curious world of stablecoins to uncover trends that may help investors like you.

Top-3 stories of the week:

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2

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The newsletter is put together by Giottus Crypto Platform and The News Minute’s Brand Studio. You can read all the previous issues of Cryptogram here.

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WEEKLY MACROS

• Total crypto market cap - $1.05 trillion - DOWN 1%

• Bitcoin price - $26,086 - DOWN 1.4%

• The dollar index (DXY) - 104.22 - UP 0.9%

• Bitcoin Dominance - 49.25% - DOWN 1%

• Crypto Fear and Greed Index - 39 - the market is in fear

ICO CALENDAR

· 25^th August - Firepot Finance (HOTT)

· 27^th August - Fleamint (FLMC)

· 29^th August - Chainflip (FLIP)

THE HOT TAKE

Stablecoins are losing sheen in 2023

Stablecoins are generally designed to have a relatively stable price to the asset it is pegged to (mostly the US Dollar). The use of stablecoins has risen sharply from less than $3 billion in market capitalisation at the beginning of 2019 to $124 billion today. They represent an ‘essential evil’ part of the ecosystem as traders use them extensively to trade their assets and bypass bank accounts for each sale.

This, and that it represents an alternative to traditional fiat currencies has irked governments who want to be able to regulate the companies behind the asset including check on sufficient reserves to back them. We all remember Terra (LUNA)’s crash in May 2022 – this stemmed from its linkage to a stablecoin (TerraUSD) that no longer held its peg to a dollar due to market issues.

A year on, stablecoins still hold 12% of the overall crypto market cap with Tether (USDT) and USD Coin (USDC) commanding most of the share (86%). Lately we are seeing multiple developments in the stablecoins front from regulation, adoption, and to Circle’s stake sale to Coinbase. We uncover these trends for you.

1. Stablecoin supply has been declining

Outstanding stablecoin supply has been trending down year-to-date. Since January 1, the outstanding supply of stablecoins has decreased from $100 billion to just $76 billion. Circle (USDC) and Binance USD (BUSD) experienced a large drop in outstanding supply. Although USDC was the largest stablecoin by outstanding supply at the beginning of the year, its has since dropped from $42.2 billion to $25.1 billion (-40%). Similarly for BUSD, issued by Paxos, outstanding supply decreased from $17.4 billion to $3.9 billion (-77%) over the same time period.

The troubles of both BUSD and USDC comes from US SEC’s enforcement against them through the year.

USDC’s market dominance is down 60% from the start of the year. It had a de-peg event in March where its value went down to $0.94 briefly.

2. PayPal enters the market while Coinbase takes a share in Circle

PayPal’s foray into the stablecoin market with PYUSD drew mixed reactions from the crypto ecosystem. With some seeing this move as a potential positive catalyst for the total stablecoin market, it also goes on to show increasing explicit interest and demand by institutional players.

While PYUSD is exclusively available within the PayPal wallet and Venmo, there are plans in the pipeline to expand its availability. With 431 million active accounts and market share of just over 50% of the global online payment processing arena, many experts believe that this move could aid in mainstream adoption of digital assets.

Circle, the company behind the USDC stablecoin, has been busy over the past couple of months. In July, they announced Wallet-as-a-Service developer platform enabling developers to create and embed secure wallets in their apps. Although the company maintains healthy profits, they went on to announce workforce reductions and the discontinuation of non-core activities as part of a strategic shift. This move was aimed at ensuring long-term sustainability and aligning resources with strategic priorities.

Recently, Coinbase announced that it had acquired a stake in Circle, dissolving the Centre Consortium which issues the USDC stablecoin. While the deal details were undisclosed, revenue from interest on the dollar reserves backing USDC will now be split equally between the two companies (Coinbase & Circle). These moves essentially pegs Circle to ensure compliance with the US SEC and make it more future ready.

3. Maker’s DAI increases yield to maintain profits

In early 2023, Maker saw substantial revenue and profit growth due to interest rates and asset adoption. However, a protocol change led to a major profit drop. This led the MakerDAO team to activate the Enhanced DAI Savings Rate (EDSR), allowing DAI depositors to earn up to 8% in yield (up from the previous 3.3%). This attempt to attract users comes as DAI's market cap has fallen 43% over the past year, and amidst Maker's attempts to protect its stake in the competitive stablecoin landscape. The high yield will remain while utilization is below 20%, progressively decreasing as utilization rises.

Since EDSR was introduced, MakerDAO’s TVL has increased by more than $1 billion. An analysis by Messari suggests Maker can turnover $80 million in annual profit with a DAI supply of 6 billion.

4. Regulations are emerging

Global leaders have started setting up universal rules and standards for the crypto sector after headline-making implosion of terraUSD in 2022 causing nearly $60 billion to evaporate from the crypto market.

While the US Senate continues to debate the House Stablecoin bill, other parts of the world are continuing to push forward regulatory frameworks for the practical adoption of stablecoin technology. Singapore Monetary Authority (MAS) recently published their framework for single-currency stablecoins (SCS) pegged to the Singapore dollar and any of the G10 currencies.

5. Stablecoin dominance is a key indicator of market movements

As stablecoins are used predominantly as a short-term store of value, their dominance indicates how the market is moving overall. In a bull market, their share goes down as traders buy Bitcoin and other altcoins to gain from the rally. Inversely, in a declining market, the dominance of stablecoins increase.

Analyzing the market cap dominance of Tether (USDT) and USD Coin (USDC), we can see that through the year, their dominance decreased (and Bitcoin gained). This metric found its lows recently and is on the way up – indicating that traders are converting most of their assets into stablecoins waiting for the right opportunity to buy crypto assets later. Currently at 10.5%, a key resistance level of 11% is up next which can give us a short-term respite from Bitcoin’s decline.

Key takeaway

Stablecoins play an active role in the crypto landscape. Tether (USDT) has more US treasury bills as reserve for its dollar-pegged stablecoin than UAE, Australia, and Spain. On a macro perspective, stablecoins (along with CBDCs) can become the core financial infrastructure of the future, provided regulations favour them. From retail point-of-view, these coins provide stability and thus are the popular low-risk asset shelter in highly volatile crypto markets.

Trading in stablecoin base pairs (BTC/USDT etc.) are double-taxed in India (with a 1% TDS). However, they are still convenient to use for their global liquidity and yields. At Giottus, investors can earn a 15% yield on USDT via fixed rewards.

Stablecoins are also an indicator of the market performance. Tracking their trends can help you navigate the markets better.

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If you have any questions or feedback for us, write to us at [email protected]. You can check out the previous issues here.

Disclaimer: Crypto-asset or cryptocurrency investments are subject to market risks such as volatility and have no guaranteed returns. Please do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.