Stablecoin may represent a subsection in the DeFI Space but it has been one of the sectors that has been growing quickly within the space. If you would flashback to a decade from now, you would only find Tether (USDT) as the first stablecoin but now there are more than hundreds of stablecoin issuers within the DeFI Space each with their own unique innovations. So let’s explore The World of Stablecoin and how things are looking for this space in 2024.
Stablecoin across the years…..
Stablecoin in 2023 might be the most utilized and exchanged digital assets across the DeFI Space but it wasn’t always the case during the early days. Just like everything in the DeFI Space, it traces its origin during the first Bitcoin Boom around 2011 to 2013. Bitcoin was the first digital asset but although it was heavily desired, it also was frequently exchanged during the early days as people really know what it’s used for and what its real value is.
The original vision behind Bitcoin was for it to be a more efficient payment system but due to its volatile nature during the early days, people adopted it as more of a digital asset. For Bitcoin to achieve its original goal, it would need to achieve a level of stability from time to time so transactions and adoption into real life could occur smoothly. This is where the idea behind stablecoin was first acknowledged and based upon during the early days.
The idea was what if there is a digital asset that utilizes the tremendous potential of the blockchain technology while also eliminating the volatile nature of the DeFI Space at that time. This was made possible through the concept of pegging the Digital Asset to a Real World asset such as Fiat Currency or Commodity in order to provide it with much-needed stability as the value was directly derived from the Asset backing it up.
This concept took off with Tether as the first Stablecoin that managed to peg its USDT token with the US Dollar on October 6th, 2014. This concept was similar to the Gold Standard era of the US Dollar and essentially means that for every USDT Token you hold, you are entitled to 1 US Dollar that is stored in Tether’s reserve. Tether then proceeds to apply the same concept to Tether Gold (XAUT) but instead of backing it with a US Dollar, Tether Gold is backed by one troy ounce of gold held in a Swiss vault.
Currently, in 2023 there are many types of Stablecoin that are present within the DeFI Space from Asset Backed Stablecoin mentioned before to Algorithmic Stablecoin which is backed by other digital assets. Of course, Algorithmic Stablecoin has not had the best of times with the fall of Terra Luna early in 2022 which caused its Stablecoin USDT to be depegged and caused a crash that would be the catalyst for what happened last year.
Despite all this, the concept of Algorithmic Stablecoin has some merit behind its innovations and is still currently being refined by other projects such as USDD and DAI. Fiat-backed Stablecoin however still holds the largest market share at more than 80% while the Market Cap of the space is expected to grow to $5 Billion within the next 5 years. Reason for this is because of the ease of the concept and utilization behind the Stablecoin that any user can adopt.
Stablecoin forms an essential bridge between the utility coin and fiat currency while for most exchange platforms, Stablecoin is the on-ramp facility to enter the DeFI Space. You don’t need to know about cryptography or blockchain to know what a USDT is and that is why it continues to be an important part, especially for new users within the DeFI Space. It also becomes an essential tool for users who would like to avoid the volatility of utility coins while still being a part of the space.
The overarching goal for Stablecoin still remains across the year as it looks for a mainstream adoption due to its similarity with its Fiat counterparts while providing better security and transparency through Blockchain technology but this is why there is a growing number of stablecoin issuers that appear within DeFI Space. Currently, there are more than 200 Stablecoin projects that are available with a daily trading volume of more than $70 Billion.
Despite the continuous growth of the Stablecoin space, regulation continues to be an ongoing discussion within 2023. The main concern was the Dollarization of the Stablecoin space as most of the major issuer has backed its Stablecoin with US Dollar and with the amount of transparency provided on the reserve that backed the stablecoin itself. Singapore was among the world’s first to draw up a concise regulation for the Stablecoin space that could be a framework for future regulations.
The US seems to still be in the lead for the Stablecoin space with USDT, USDC and BUSD currently occupying the top spot but as the US Regulation seems to still be missing, it opens a new avenue for other countries to take the lead. Tether Euro (EURt) is the largest Non-USD Fiat backed Stablecoin and with the Stablecoin continuing to flourish within 2023, it could be heading for a great outlook as the DeFI Space recovers.
Trajectory in 2024
The Stablecoin space might be a separate place from the other Altcoins present in the DeFI World but its trajectory is somehow always interlinked. With Bitcoin having a great rally so far and the number of users within DeFI Space expected to reach 1 Billion by 2025, it is fair to assume that the trajectory of Stablecoin should also be on the upside. The growth of Market Cap USDT and BUSD seems to point in this direction although USDC continues to slump on a Year to Year basis.
Growth of the Stablecoin space should also be expected as the topic of Tokenization becomes more mainstream within the DeFI World. Stablecoin presents itself as the first successful case study of Tokenization within the DeFI Space and the concept continues to be spread with many different assets and currency. We see this with the first Bitcoin rise in 2021 as more innovations come to fruition so expect new possibilities within the Stablecoin space in 2024.
Of course, it’s not all sunshine within this Stablecoin space as regulation continues to be a factor for the certainty of this space. Stablecoin presents a successful marriage of the blockchain system with our fiat currency and that’s why it faces challenges from both aspects. Regulations for Stablecoins seem to still be unclear for most developed nations while the continued uncertainty with the US Dollar seems to hamper the growth.
All in All, Stablecoin continued to become a shining beacon, especially for people in countries with high inflation such as Argentina and Turkey. Stablecoin presents an easy way for them to safeguard their well-being and survive the economic uncertainty that is currently going on. The Stablecoin space should continue to be on an upward trajectory in 2024 and with the DeFI Space recovering to be at best, we can expect new innovations to rise up to the challenge.
Stablecoin and the concept of tokenization have continued to bring innovation over the years, we here in Nagaya hope that the new generation of tokenization can be adopted seamlessly by everyone. Nagaya in itself is the World’s First Hybrid Digital Asset that is backed by Gold to maintain its intrinsic value while creating sustainable growth in the long term. We understand the value that real assets like Gold bring and we hope that combining it with the enormous potential of the Blockchain Network should be able to provide value to all of you our holders. If you are interested to know more about Nagaya, you can visit our website at www.nagaya.co
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