Stablecoins still struggle to maintain peg during periods of volatility – CoinGecko

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Stablecoins continue to face challenges in maintaining their peg during volatile market times, according to a recent report by CoinGecko. The March 2023 banking crisis, which raised concerns about deposits at Silvergate and Signature Bank, highlighted this issue.

However, despite previous struggles, established stablecoins such as Tether USD (USDT), USD Coin (USDC) and DAI have demonstrated an improved ability to maintain their $1 peg. However, newer and partially algorithmic stablecoins such as USDD and FRAX remain more volatile, relying on market arbitrage to hold the peg.

Increasing dominance during tough times

Although the level of the dollar could be shaken during bear periods, stablecoin dominance usually increases during these conditions.

As of August 1, 2024, stablecoins represented 8.2% of the total crypto market cap, up from around 2% at the beginning of 2020. This means that they managed to grow even during the deep bear market recorded between 2022 and 2023.

The total market capitalization of the top 10 fiat-pegged stablecoins has grown significantly. From January 2020 to March 2022, it grew by 3,121.7%, rising from $5 billion to $181.7 billion.

In particular, the total market capitalization of stablecoins managed to recover from the May 2022 Terra USD (UST) collapse, as it increased from $119.1 billion in November 2023 to $161.2 billion in August 2024.

Strong USDT dominance

USDT, USDC and DAI dominate the stablecoin market, comprising 94% of the total market capitalization. USDT has strengthened its position with a market share of 70.3%, while USDC’s share has declined since the March 2023 US banking crisis.

The top 10 stablecoins have 8.7 million holders, with USDT, USDC and DAI accounting for 97.1% of them. USDT leads with over 5.8 million wallets, more than twice its closest competitor, USDC.

In addition, commodity-backed stablecoins have also gained traction, reaching a market cap of $1.3 billion as of August 1, 2024. Tether Gold (XAUT) and PAX Gold (PAXG) account for 78% of this segment , which has increased 212 times since 2020. .

However, commodity-backed stablecoins still account for just 0.8% of their fiat-backed counterparts in market capitalization.

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