USDC, DAI, PAX, GUSD and TUSD: various and serious contenders to USDT
Stablecoins have become a cornerstone of the crypto economy, used by traders to de-risk their positions or facilitate operations. Traders have long realized that trading in and out of USD-pegged tokens within a crypto-only exchange has a CRITICAL cost advantage compared to trading in and out of FIAT. Assuming that the essential qualities of stability and security are met, the trader’s choice for the right stablecoin is a matter of liquidity and coverage.
In order to meet market expectations, the Nitrogen Network has just unveiled its new launchpad, an interface designed to borrow stablecoin in just 5 clicks. The platform allows borrowers to unlock their full liquidity potential, posting tokens they hold as collateral, and getting leverage in one of the major stablecoins: TrueUSD (TUSD), Center, Circle and Coinbase’ USDC, Paxos’ PAX, Gemini’s GUSD and MakerDAO’s decentralized DAI.
These five stablecoins were eventually meant to join the wide range of ERC-20 tokens already available to borrow or lend on the platform.
Combined market cap of selected stablecoins represents only the third of USDT market capitalization (currently at $2.05B), and their 24h exchange traded volume (exc. OTC a priori) is only 1.5% of the USDT’s.
Although numbers (especially exchange traded volume) of ERC-20 Stablecoins being relatively low to USDT’s, they look very promising if we consider that TUSD was only launched in March last year, PAX and GUSD in September, USDC in October 2018. Yet trading of USDT was already possible on Bitfinex 4 years ago, in Jan 2015.
What is more impressive is the coverage of ERC-20 top stablecoins across exchanges and pairs, with a special focus on the liquidity of their order books. Despite the low daily volumes, the order books’ depth signals a resilient bid-ask spread which implies a low market impact from trading. Looking at the order books of the BTC/USDT and BTC/TUSD pairs in Binance, both bid ask spreads are tight and very comparable, within bps. Order book sizes can also be more substantial for the TrueUSD pair than its USDT counterpart.
If you measure the incurred critical cost savings when trading TrueUSD pair on a large crypto-exclusive exchange, rather than the FIAT-based pair on a traditional exchange, you should be even more excited about on-chain transactions. The more confined trading is, namely on the blockchain, the higher the potential to lower frictions: transaction-based (trading and withdrawal fees) or entity-based (e.g. KYC and AML costs). Transacting on-chain can be very efficient. Promising projects in this direction are ongoing. e.g. Ethereum’s Metropolis.
The impressive progression of our stablecoins metrics is not their only advantage. From a governance perspective, the evolution is incredibly positive. For instance, MakerDAO chose full transparency with a community-driven governance system for the DAI. Every metric (volume, system’s current collateralization ratio among others) is readily available: https://mkr.tools/system.
On the other hand, TUSD, USDC, PAX and GUSD are subject to regular independent audits, where Tether (USDT) is not. The end of Tether’s relationship with its auditor Friedman LLP and the rising suspicions over its USD collateralization, paved the way for our new serious stablecoin contenders.
A strong governance is an essential step to preserve a stable parity to the US dollar. Because guarantees are few relative to the size and complexity of the crypto economy, the five stablecoins selected by the Nitrogen Network are among the most promising cryptocurrencies on the market. Their value is not measured by the parity, but by the quality of governance, by the fulfillment of its parity and stability objectives. These currencies have taken serious steps towards such guarantees, only they can be the foundation on which crypto-linked derivatives can thrive. The most basic of all: P2P crypto loans.