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Stablecoins value has now hit $20 billion, a new surge. Growing investors’ demand to caution themselves from COVID-19 pandemic effects on crypto and traditional markets is attributed as the main reason.
On Thursday, the total value of stablecoins supply surpassed the $20 billion dollar mark, according to Coin Metrics data. In May, more than 4 months ago, the same data agency reported that the total supply of stablecoins had broken the $10-billion record – having earlier surged by more than 70% in less than two months.
Actually, stablecoins are digital tokens whose values are pegged to fiat (government-issued) currencies such as U.S. dollars – a de facto type of cash in the dynamic cryptocurrency markets.
Moving or holding the coins within the digital ecosystem – between wallets, exchanges, and lenders – is easy compared to the actual dollars.
Stablecoin-fueled Buying Spree
Director of institutional research at TradeBlock – a cryptocurrency analysis firm – John Todaro attributes the latest rise on mainly the current downward pricing trend being witnessed amongst non-stablecoin digital currencies like bitcoin.
Todaro explained to CoinDesk via email:
“Because some exchanges do not offer fiat pairs, stablecoins are the only available option for traders to move risk off into fiat-like assets during periods of volatility.”
As an intermediary step, many Traders and individuals usually engage in stablecoins before engaging themselves in cryptocurrencies – which is considered a riskier option. First of all, they will take the U.S. dollars or any other government-issued currencies and purchase stablecoins. Then, transfer the stablecoins to various exchanges. Later on, when the price is viable, trade the digital cash for Bitcoin, Ether or any other crypto.
As the pandemic wreaked havoc on the global economy, traders are thought to have bought the stablecoins in the digital-market flight to a cash equivalent. They reacted in a similar manner as traditional investors who rush to liquidate stocks and bonds for U.S. dollars until the markets stabilize.
‘Crypto Dollarization’ Trend Going On
In April, the balance on exchanges for the most popular stablecoin in terms of market capitalization Tether hit its all-time high according to a blockchain data and intelligence provider Glassnode. On Sept. 21, the crypto data site’s weekly report showed that the stablecoin increase in supply led to higher liquidity in both crypto transactions and trading.
The recent decentralized finance (DeFi) sector hype is also believed to have partly caused the stablecoin demand surge. DeFi users usually receive high yields using stablecoins (depending on price fluctuations) from pubescent DeFi platforms like Uniswap, Aave, dYdX and Curve.
Todaro also added that corporations and individuals could use stablecoins to bypass capital controls and other rigid enforcements when moving USD-like assets from place to place in this period of heightened political uncertainty. Perhaps dollar-backed stablecoins are continuously posing as a reliable option.