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Coin Metrics' State of the Network: Issue 105
Tuesday, June 1st, 2021
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Weekly Research Focus
Stability After The Crash
The crypto market has been tested over the last few weeks following a cascade of negative news. The resulting price crash has also been a big test for stablecoins, which are increasingly becoming a critical part of the ecosystem.
On May 19th a flash crash caused by a liquidation cascade brought bitcoin’s price from $39K to close to $30K over the course of a few hours. Sudden unexpected price drops can throw stablecoins off of their price peg. As price drops, investors often rush to trade their cryptoassets into Tether (USDT), USDC, DAI, and other stablecoins. At the same time, liquidation events triggered by falling prices can cause stablecoins being used as collateral to be sold. This sudden shift in supply and demand can potentially knock stablecoin prices from their $1 peg, and threaten their stability.
Overall, stablecoins weathered the storm relatively well. Stablecoin prices temporarily spiked following the flash crash. But most stablecoins remained under $1.01, and dropped back below $1.005 within six hours.
By comparison, during the March 2020 crash stablecoin prices surged to $1.05 and above, with prices remaining elevated for days afterwards. While DAI was knocked well above its $1 price target during March 2020, it stayed much closer to the peg this time around thanks to several improvements from MakerDAO.
May 19th was also a record day for stablecoin trading volume. Tether (USDT) alone had over $70B worth of trusted trading volume, more than both bitcoin (BTC) and ether (ETH). USDT is often used to trade against BTC, ETH, and other cryptoassets, which likely accounts for a bulk of the volume.
Unsurprisingly, the number of stablecoin transactions also peaked on May 19th at over 1.5 million. A majority of those transactions were due to the Tron version of Tether (USDT_TRX).
Tron has minimal transaction fees compared to Ethereum and Bitcoin, which makes it a good candidate for sending relatively small transactions, or for use cases such as transferring funds between exchanges.
Tether is issued on multiple platforms, including Omni (which is built on Bitcoin), Ethereum, and Tron. Over the last year Tether supply has shifted towards Tron, which now accounts for 53% of total Tether supply (across those three platforms).
But despite USDT_TRX’s lead in terms of transaction count and supply, the Ethereum version of Tether (USDT_ETH) has still had more transfer value over the last few weeks, which suggests different use cases for the Ethereum and Tron versions of Tether.
Overall, Tether is still the leader in terms of total stablecoin supply. But others are growing fast. USDC supply has increased by over 6 billion since May 12th, up to a total of over 20 billion.
USDC supply has been growing at a faster rate than Tether since the beginning of 2021, and its growth rate has increased significantly over the last month. And with a recent announcement of $440M fundraise for Circle, the company behind USDC, USDC’s momentum should only increase from here. Tether still reigns supreme, but if current trends hold, USDC may soon catch up.
Network Data Insights
The crypto market mostly moved sideways this past week following the mid-month crash. BTC and ETH fees both had a significant dip, dropping 35.2% and 68.3% respectively. Fees on both networks previously surged with a flurry of trading and liquidations surrounding the market crash, so the drop does not come as a surprise. Amidst the market volatility USDC continued to rise, with total supply growing by 17.8% week-over-week to a total of over 21B.
Wrapped BTC (WBTC) on-chain transfer value surged to $2.9B on May 19th, and has averaged over $1B a day since then. The following chart shows WBTC transfer value smoothed using a 7-day rolling average.
WBTC supply has grown to over 181K after dropping to about 108K at the start of the year. Used extensively in DeFi, this likely signals that WBTC is becoming an increasingly important part of the DeFi ecosystem.
Ethereum’s average gas price climbed to over 324 GWEI on May 19th. But since then it has dropped back down to much lower levels. Average gas price on May 27th was 38 GWEI, the lowest it's been since December 2020. For more on Ethereum gas price dynamics check out The Ethereum Gas Report.
Coin Metrics Updates
This week’s updates from the Coin Metrics team:
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Coin Metrics’ State of the Network, is an unbiased, weekly view of the crypto market informed by our own network (on-chain) and market data.
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