Failure of TerraUSD in May 2022 has halted Stablecoins’ unprecedented peak run of preceding two years, reveals new research report by crypto exchange Binance. At present, Stablecoins may well represent the best approach for connecting payments and other real-world applications with crypto
A half-yearly research report by crypto exchange Binance has revealed that the Stablecoin market capitalisation grew by over 3,000 per cent from January 2020 to January 2022. The years 2020 and 2021 witnessed the maximum growth in the Stablecoin market. That said, the market shrunk by 7.7 per cent from the start of the year to June 2022, the Binance Research Report June 2022 said.
“They exploded in size, and following the growth of decentralised finance (DeFi), Stablecoins found more and more use-cases within the crypto landscape. Within just a few years, they became a central backbone of further crypto adoption, but also continued to be further scrutinised by regulators to find a balance between consumer protection and crypto adoption,” the report said.
The report further noted that as for 2022, the growth has been a lot more moderate than in the previous two years.
“Stablecoins grew steadily throughout the first few months of the year, with investors moving their assets out of volatile cryptocurrencies into presumably less volatile Stablecoins,” it added.
The report has also highlighted how the failure of the TerraUSD Stablecoin interrupted the growth journey in May 2022. Early this May, Terra’s UST fell prey to an algorithmic Stablecoin death spiral, wiping out nearly $40 billion in market cap across UST and LUNA.
The crash of UST also led to lots of criticism for algorithmic Stablecoins.
“There’s still a lot of education that needs to happen around the risks that come with crypto, as with many other investments, and with the potential of failure of young projects that are trying to create and grow a new category of Stablecoins,” the report said.
The report further said that Tether remains the leading centralised Stablecoin, though both BUSD and USDC are catching up fast. During the first half of the year, BUSD grew by more than 22 per cent, surpassing 17 billion in market capitalisation. During the same time period, Tether’s USDT fell by more than 15 per cent, underpinning the quality element of BUSD.
“For algorithmic Stablecoins, the over-collateralised model has, so far, proven to be more resilient. With the increased adoption of crypto and many use-cases for Stablecoins, there is a lot of room to fill for projects aiming to compete, and we saw more and more L1s announcing their own version of an algorithmic Stablecoin this year,” the report said.
The Binance report further said, that at this point, Stablecoins may well represent the best approach for connecting payments and other real-world applications with the crypto space.