Having a look at the most popular stablecoins, we don’t see any non dollar stablecoins in the top 10. Why is that? And how could a larger market for non USD stablecoins be accomplished?
The degree to which US dollar stablecoins outnumber other types of stablecoins (euro, pound, etc) is staggering. Just compare the top dollar stablecoin by market capitalisation USDT (Tether) to a top euro stablecoin EURS (Stasis Euro). The market cap of USDT is 72 billion. The market cap of EURS is around 130 million. That’s around a 500 x difference, which is totally out of whack with the balance between ‘real’ dollars and euros in circulation (about 3 to 1).
Maybe surprisingly, the largest market for stablecoins besides the dollar is … gold-backed stablecoins.
Why are Non Dollar Stablecoins Less Popular?
Even the most adventurous algorithmic stablecoins like DAI peg to the good old dollar. Why? There are two main reasons why the vast majority of stablecoin volume is dollar stablecoin volume:
- Most people want dollars. It’s still the dominant medium of exchange: world trade is still largely in dollars. People in large parts of the world want and accept dollars. Migrants who send money to relatives in their home country are likely to choose dollars. When shit hits the fan in the world economy, the dollar is the currency that rises in value against other currencies. So it’s no surprise that not just real-world goods like oil are priced in dollars, but so are crypto currencies. Probably the biggest pull for US-pegged stablecoins has been their utility of collecting yield in DeFi.
- Non dollar stablecoins are a less profitable business model for the companies that issue them. The issuers of ‘traditional’ (collateralized) stablecoins back their issued stablecoins (we hope) with real dollars. Now mind this: the interest rate on dollar accounts in the US is higher than on euros in the eurozone. The interest rate for institutional lenders In Europe is even negative. The same goes for the yield on US treasuries versus EU bonds (US treasuries are ‘dollar equivalent’ and accepted as collateral for stablecoins by auditors). So there is just less room to arbitrage the yield on ‘real’ euros versus euro stablecoins, compared to dollars. Another issue is that the collateral of the stablecoin issuers has to be highly liquid. When holders of the stablecoin decide to go for a ‘bank run’, the issuers need to be able to sell their dollar stash on a moment’s notice. The US treasury bond market allows for that, as it is the most liquid and deep market in the world.
Different Types of Non Dollar Stablecoins
Even though the dollar is the most obvious choice to peg a stablecoin to, there are endless other options. After all, you can peg a token against anything. But the following are some of the most sensible options for stablecoins to be pegged against:
- Another currency, like the euro or yen
- A weighted basket of sovereign currencies (Facebook’s Libra was intended to be such a stablecoin)
- Gold
What are the Most Important Non USD Stablecoins?
The most important alternatives to dollar stablecoins are gold stablecoins and euro stablecoins.
Gold-backed stablecoins
A big advantage of a gold-backed stablecoin is that while it tracks the price of gold, it is better divisible and transportable. Needless to say, buying stablecoins is…
Erik started as a freelance writer around the time Satoshi was brewing on the whitepaper.
As a crypto investor, he is class of 2020. More of a holder than a trader, but never shy to experiment with new protocols.
