- Total issuance was 3466 which accounts for 50.29% and in terms of USD it was $155.63 accounting for 79.12%
- USDT market for stable currency increased from $46 bn to $88bn in the first week of January’20 causing an increase of 191%
The pandemic of 2020 has led to short term uncertainty leading to rapid issuance and destruction of Stablecoins in the past 3 months. These are cryptocurrencies designed to minimise the volatility of the price of stablecoins in relation to stable assets or ‘basket of assets’. A stablecoin can be pegged against a fiat money, cryptocurrency or exchange traded commodities such as precious metals.
In 2020, the total issuance was 3466 which accounts for 50.29% and in terms of USD it was $155.63 accounting for 79.12% of total issuance compared to 2019. Data suggests, stable currency market capitalization has exceeded $234 bn.
There are multiple reasons for increase in importance of stablecoins
The crypto market had plummeted in beginning of 2020 and investors preferred exchanging assets against safe-haven options due to the pandemic panic. This led to funds clutching to stablecoins subsequently pushing demand for stablecoins. The USDT market for stable currency increased from $46 bn to $88bn in the first week of January’20 causing an increase of 191%.
As the pandemic gained traction across the globe, the market had collapsed as anticipated. However, investors which still had confidence in crypto assets such as Bitcoins returned to buy bottoms hoping the worst was over. Certain institutional traders also came back to arbitrage when the difference between spot and future prices was the highest due to uncertainty. Since demand for liquidity was also increasing, additional issuance was the fastest method causing regular growth in the market value of stablecoins.
The DeFi liquidity mining (additional token earned by liquidity providers for facilitation of trades) and Bitcoins bull set off the bulls in the industry, popularity of mortgage derivatives also gained popularity and a surge in the bullish sentiment led to preference of cash reserves and stable currency. As there was also an increase in the major currency prices, there was an increased liquidity of stablecoins.
Since the entire globe was grappling with extended lockdowns, there was a deep liquidity crisis. The stable currency called the digital dollar carries a certain amount of liquidity demand attracting inflow of funds from outside the circle. Simultaneously, the costs of cross-border payments, remittances and various transfers have become costly attracting funds from outside the known circle.
With the global economy coming to a virtual halt and government economic packages offering limited relief, additional issuances of stablecoins can resolve the issues. Ultimately, the overall markets of stablecoin has risen in the context of rapid currency fluctuations. The world is going through a delicate situation with lot of uncertainty and hence the usage of such options will increase considering the widespread impact any action can have.
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