CryptoQuant, a data analysis firm for cryptocurrencies, published a research report on stablecoin efficacy on July 21. In light of the distinct differences among stablecoins, this report offers an in-depth analysis of the eight major stablecoins in the market (USDT, USDC, BUSD, DAI, Frax, TUSD, USDP, and GUSD) from four dimensions: peg robustness, price premium, velocity, and accessibility.
TUSD ranks among the top of the eight stablecoins in terms of peg robustness. In other words, compared with other stablecoins, TUSD will be more robust and reliable when facing a higher risk of a redemption run, similar to a “bank run”.
As a means of exchange, stablecoin connects the crypto world to the traditional market and plays a vital role in the cryptocurrency industry. According to the report, stablecoins not only can be used for trading in and out of other cryptocurrencies (such as Bitcoin and Ethereum); but also for international settlements since transferring stablecoins internationally is faster and cheaper than sending currencies using traditional financial rails. Finally, it is suggested that stablecoins can be used to earn interest through investments while taking higher risks.Therefore, a thorough understanding of the use cases and the effectiveness of stablecoins is essential for crypto investors.
Let’s take a look at peg robustness first. The word “robust” means vigorous and healthy. Robustness is crucial for financial products, as it represents resilience — the ability of a project to stabilize its value against risks such as a “bank run”. Stablecoins with high peg robustness allow users to redeem their assets securely even during high redemption requests. Naturally, stablecoins with high robustness are the top choice of investors looking to trade crypto assets.
In theory, a stablecoin’s peg robustness is measured by two metrics: price deviation multiple and redeemed supply flow. This may be counterintuitive to many retail traders, who would link how well a stablecoin can maintain its peg to its level of price deviation. To make it easier to understand, here we provide an example using the two similar concepts mentioned in this report: price deviation and the ratio of the stablecoin’s daily redeemed supply to its total supply. In the case of USDT, despite its recent price stability with a minor deviation of 0.18 cents (TUSD and USDC recorded 0.22 cents and 0.71 cents, respectively), it is pointed out that USDT’s peg is stress-tested less by redemptions. Relevant stats show that the average daily redemptions as a percentage of total supply over the past year have been only 0.15% for Ethereum-based USDT, contrasted by 1.01% for TUSD and 0.82% for USDC. It is therefore biased to gauge a stablecoin’s stability purely based on its level of price deviation.
According to the report, for stablecoins with lower price deviation and higher redeemed supply, the quotient will move closer to zero, which denotes higher robustness. Results show that TUSD, USDP, and GUSD have the lowest levels of price deviation at -0.31, -0.22, and 0.32, marking higher peg robustness scores. In the author’s opinion, a stablecoin’s robustness score mirrors the confidence of its holders, which is affected by several factors such as the stablecoin’s transparency, reserves, auditing flow, etc. TUSD’s high robustness score is well-deserved–available sources reveal that it is the world’s most transparent stablecoin that is fully collateralized by U.S. dollars and attested live on-chain. Also, TUSD is audited real-time by Armanino, a leading U.S.-based accounting firm, to ensure a 100% collateral ratio.
Now, a close-up of the other three metrics. Price premium is used to analyze the historical prices of stablecoins to identify if a token has traded at a premium or a discount. In this respect, DAI and BUSD are deemed the least volatile in terms of their median closing price and median low price. Because of their significant volatility, USDC, USDT, and GUSD are obvious targets of arbitrage trading, while TUSD and FRAX are ranked in between. As opposed to losses from trading at a discount, a price premium allows stablecoin holders to profit from selling at a premium in the short term. However, stablecoins with their price stabilized at one U.S. dollar are still preferred by investors. This is because drastic price deviations from the peg make stablecoins a vehicle of arbitrage trading for speculators, forcing regular traders to bear extra fees or transaction costs.
The other two elements analyzed in the report are velocity and accessibility. In terms of both metrics, USDT reigns supreme. This ranking is based on the statistics of centralized exchanges on CoinGecko and CoinMarketCap, speaking to USDT’s decisive first-mover advantage. As one of the first stablecoins in the market, USDT is widely adopted by crypto exchanges as the main quote currency for their trading pairs. This makes USDT more accessible and also circulate better than its counterparts. Nevertheless, the report also points out that stablecoins’ availability on public chains is equally important to their accessibility in exchanges. While many stablecoins operate on Ethereum, TUSD is one of the major stablecoins on TRON, and BUSD runs on Binance Chain. Since there are no relevant statistics available in the report, we will not explain them in detail.
The report also highlights that not all stablecoins are “equal”, citing the regulatory distinctions. To name some examples: USDC’s issuer has money transmitter licenses in 44 U.S. states; TUSD’s issuer operates under the Nevada Financial Institutions Division (NFID); the issuer of BUSD and USDP is regulated by the New York State Department of Financial Services (NYDFS). In contrast, USDT is not subject to any state-level regulations. Facing mounting regulatory pressure and the aftershock of UST’s de-peg incident, investors are advised to identify the hidden risks when investing in stablecoins. In the meantime, TUSD, a compliant and robust stablecoin, is expected to see faster growth.