Footprint Analytics: Rapid Expansion of the Stablecoin Market | Annual Report 2021
The dramatic expansion of the stablecoin market in 2021, 6 most important events.
The second thing most people do after entering the world of blockchain, after buying BTC or ETH, is getting some Tether or USDC. As a bridge between the real world and Web 3.0, stablecoins play an incredibly important role in the functioning of the blockchain.
According to Footprint Analytics, USDC, a US dollar stablecoin, surpassed $42 billion of issuance in December, ranking second by market map behind USDT (Tether) with $78.4 billion. The decentralized stablecoin UST also surpassed $10 billion in market cap in the same month.
Along with the dramatic expansion of the stablecoin market, many countries have noticed risks and conducted studies on possible regulations. In this article, we will review what happened to stablecoins in 2021, focusing on the 6 most important events.
1. Algorithmic Stablecoins ESD and FRAX Break Into Top 10
Data from Footprint Analytics data shows that algorithmic stablecoin ESD rose from $120 million to $440 million, or 266.7%, in January, while FRAX rose 351.6% to $140 million. They are now the 9th and 10th biggest stablecoins by market cap.
Algorithmic Stablecoin ESD, known as Empty Set Dolla, is a synthetic asset issued by Empty Set in 2020 and is a decentralized algorithmic stablecoin anchored to the US dollar. FRAX is a stablecoin protocol with a hybrid algorithm, issued by FRAX in 2020.
2. Algorithmic Stablecoin Fei Protocol Announces Shutdown of Burn Facility
In April, the price of ETH fell below $2,000 at the same time as the price of the algorithmic stablecoin FEI fell below $0.9. Fei Protocol should have automatically activated its burn facility to destroy Fei, which would wipe out all user funds. In order to protect the coin from being de-anchored, the project overruled the protocol’s settings and disabled the burn facility.
Although such action also protects users’ assets, FEI’s disobeying the original rules leads to plummeting reputation of itself, even with the financial support of well-known institutions such as Coinbase. Based on Footprint Analytics data, we can see hundreds of millions of dollars flowing out and FEI’s market cap falling off a cliff.
3. Euro and Other Fiats Get Crypto Pegs
In 2021, the number of stablecoins anchored by fiat currencies other than USD, such as EUR, KRW, and JPY gradually increased.
Among the many non-dollar-anchored stablecoins, EURS and SEUR, which are anchored to the euro, have the same price, followed by KRT which is the Korean Won stablecoin. The Japanese yen stablecoin, JYPC, is a relatively mediocre performer.
El Salvador also planned to launch a government-issued local stablecoin by the end of 2021 but did not release any further news. Instead, it adopted Bitcoin as legal tender in September.
4. Stablecoin Projects Suffer Lightning Loan Attacks
As the stablecoin market expanded, so did the number of attacks it faced, mainly from flash loan attacks .
- In June, SafeDollar, a stablecoin project deployed on Polygon, was attacked and the value of the issued stablecoin, SDO, briefly went to zero. It has since recovered, but has not returned to its $1 anchor value.
- In August, WUSD, the stablecoin of Wault Finance, a DeFi platform deployed on BSC, suffered a flash loan attack and lost $800,000. WUSD’s price fell below $1.
- In November, OUSD, a stablecoin issued by Origin Protocol, suffered a flash loan attack, losing $2.25 million in DAI and $1 million in ETH.
5. Countries Launch Regulatory Efforts
In 2021, the total issue number of stablecoins issued on Ethereum exceeded 100 billion, leading to some countries looking into regulations.
- October: The U.S. SEC gained an advantage in the U.S. agency debate on how to regulate stablecoins， and promising rights to regulate stablecoins.
- November: The U.S. The Financial Stability Oversight Council issued a report on stablecoins and urged Congress to enact legislation.
- December: The U.S. The House Financial Services Committee held hearings on stablecoin regulation.
- November: Shinhan Bank said it was testing the issuance of a stablecoin for the Korean won based on the Hedera Hashgraph blockchain.
- November: The Korea Financial Services Commission (KFSC) has issued a report on restrictions on token issuance.
- November: The European Central Bank expanded its PISA framework to cover digital currencies and stablecoins.
- December: Japan’s Financial Services Agency said it would impose new restrictions on stablecoin issuance in 2022.
6. 2021’s Best Managed Stablecoin Project: Terra
While the stablecoin market expanded rapidly in 2021, no project stood out last year as much as Terra, which we covered in a previous article.
Terra’s TVL peaked for the year 2021 at $21.09 billion on Dec. 27, up 62.9x from $330 million on Jan. 1. The price of its native token, LUNA, also increased 306.3x to a yearly high of $199.78.
Terra also launched UST, a USD stablecoin with a market cap above $10 billion, and the KRT, a Korean Won stablecoin.
In 2021, over 20 new stablecoins were launched, the highest number ever. Additionally, because of the constant growth of stablecoin transactions in 2021, the increased demand for cross-border payments and the value preservation function that stablecoins have, Footprint believes that stablecoins will continue to expand their role as a cryptocurrency bridge in 2022.
Furthermore, investors and crypto enthusiasts will have more options outside of pegging their crypto to USD, while some stablecoins, like Tether, will likely feel the heat of regulators.
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Date & Author: Jan 12th 2022, [email protected]
Data source: Stablecoins Dashboard
This article is part of our Year in Review series.
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