Stablecoin adoption has grown by over 100% this year: here’s why
2021 has been a huge year for the cryptocurrency industry, with over $ 1,000 billion in new capital flowing into the blockchain space this year alone. Stablecoins, cryptocurrencies priced at $ 1, have also been enacted en masse this year. But, with cryptocurrency prices soaring, why are investors buying fiat-pegged stablecoins?
As the data collected by chain analysis company Glassnode shows, stablecoins have been widely adopted in recent years. As more and more users adopt stablecoins, the price of these assets becomes more stable, as fewer arbitrage opportunities are created in the markets. As you can see from the gray lines on the threads below, stablecoin prices fluctuated a few percentage points back and forth, but have since seen much higher rates of stability. This ensures that investors will not experience a significant slippage when buying or selling fiat pegged stablecoins.
Cryptocurrency wallets containing USD coins from January 2019 to September 2021
The chart above shows USDC volatility in gray, juxtaposed with the number of users who hold stablecoin in their cryptocurrency wallets in blue. Since the start of 2020, the number of wallets holding USDC has grown from less than 100,000 users to over 1 million.
DAI Stablecoin Cryptocurrency Wallets: January 2020 – September 2021
DAI, a stablecoin created by MakerDAO, has seen similar growth over the past 18 months. As of January 2020, there were less than 25,000 cryptocurrency wallets that held the DAI stablecoin. In contrast, around 400,000 cryptocurrency wallets currently hold DAI today.
But why are investors rushing into stablecoins when there are profits to be made on volatile cryptocurrencies like Bitcoin and Ethereum? The answer: Stablecoins offer a low-risk way to earn solid interest that beats all the rates offered in traditional markets.
There are 2 main reasons why stablecoin interest rates eclipse bank rates: technology and taxation.
Since blockchains eliminated middlemen, crypto lending markets have become extremely efficient, transmitting value to those who deposit stablecoins into high yield savings accounts.
Additionally, many crypto holders are sitting on millions of dollars in unrealized profits. If they need cash, they are faced with 2 choices: sell the valuable crypto and pay 20% capital gains tax, or guarantee the crypto and pay 5-10% interest to avoid selling. For many, the decision is straightforward.
Thanks to these early investors and the efficiency of blockchain technology, anyone in the world can lend stablecoins such as USDC and DAI and earn almost 5-10% return with very low risk.
See also: How to earn 9% APR on USDC with Voyager
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