The Rise of Stablecoins – How The Demand of USDC Rapidly Increased by Over 500% Under COVID-19
In the year 2020, the COVID-19 pandemic has created a ton of volatility in the currency markets of developing nations. As national currencies floated against one another, international trade was ultimately impacted and capital flows around the world were greatly affected. During this period of uncertainty, many investors took advantage of the crash and bought into precious metals such as gold and silver as hedges against a potential recession. A good portion of these investors saw the resiliency of Bitcoin and consequently the demand for this type of infrastructure that enables instant low-cost transfers of paperless money, ironically took us into a new era of growth and innovation.
Despite the US dollar losing some of its value due to all of the stimulus aid that was injected into the US economy, the demand for its digital counterpart skyrocketed. One particular stablecoin known as the USD Coin or USDC has been rapidly growing in popularity due to its technological advancements. From a market capitalization hovering at just half a billion at the beginning of 2020, USDC has grown to a market capitalization of over 2.8 billion as of today (11NOV20), showcasing a growth of over 500% within this year alone.
When USDC was first introduced in 2018, it was mainly used as a hedge against various cryptocurrency positions that shot up dramatically in value into bubble territory. Stablecoins were invaluable as many investors wanted to stay in the crypto markets and had no intention of selling their cryptocurrency positions for fiat and
face the new tax implications that were imposed by their respective governments. The majority of the investors that did not cash out from the crypto markets protected their profits by hedging their positions and trading it for Tether, otherwise known as USDT, the stablecoin market leader before USDC was introduced.
Back in 2018, the trading volume of USD Coin was abysmal and as the market capitalization of Tether grew, it correlated with falling crypto prices as investors used stablecoins to hedge their positions. The growing market capitalization of USDT back then meant investors were selling cryptocurrency (I.E. Bitcoin) for stablecoin (I.E.USDT). Tether was not regarded as a viable cryptocurrency that had the ability to onboard users as there were no means to purchase USDT with fiat. It was simply known as a stablecoin used to hedge existing cryptocurrency positions and oftentimes there were questions raised by traders regarding its solvency and its viability to be pegged to the US Dollar.
Today, the ecosystem has completely changed with the USDC being marketed as the digital US Dollar backed by banking institutions and a popular onramp for first-time cryptocurrency investors. When the market capitalization of USDC grows, the prices of cryptocurrencies no longer exemplify an inverse correlation to stablecoins as it did with USDT back in 2018. Since USDC is known to be a noteworthy cryptocurrency in itself with its own set of unique and profitable features such as high APRs alongside staking rewards, enthusiasts
are eager to convert their fiat into digital USDC, which could only increase the market capitalization of USDC. Another distinction that USDC holds is its timely audits that prove its solvency, which has attracted users to also switch towards trading in USDC rather than in USDT despite Tether pairings having more liquidity. This does not mean that Tether is losing its appeal as a stablecoin as USDT still offers the best options in futures trading and leveraged crypto ETFs. However, the blockchain ecosystem has certainly evolved dramatically in a very short time and Blockchain Bank is looking to incorporate entire infrastructures built around USDC alongside numerous other cryptocurrency projects.
Some of the unique features that recently developed on top of USDC is its ability to be global and interoperable with the ability to be collateralized in the DeFi space (link to DeFi blog if you want to learn more). The mass
appeal of a USD pegged stablecoin allows users access to assess the versatility of the US Dollar without being
restricted to specific government banking regulations. Citizens from developing nations suffering from massive inflation can transact in USDC without having to financially onboard a US banking institution. New online business owners that can successfully grow their business through an exponential increase in cash flow will also not be at risk to have their funds frozen.
Seamless Banking for Agile Businesses
Blockchain Bank makes acquiring USDC easy for everybody. The platform offers flexible support for the USDC along with other cryptocurrencies for many use cases including payroll processing, dividend payouts, and merchant transactions. Businesses will soon be able to seamlessly transact with USDC or any other cryptocurrency of their choosing with detailed payment remittances via smart contracts on the ethereum
blockchain. Commerce can be conducted and finalized over the weekend as funds can be settled instantly without having to wait until the banks open.
Transferwise is one of the largest payment settlement platforms that specialize in dealing with international currencies and through the growing popularity of cryptocurrency, purchasing Bitcoin via Transferwise has now been integrated within Paxful, one of our notable Fintech partners. Paxful specializes in peer-to-peer payment logistics and Blockchain Bank can leverage this to provide greater utility to all our clients. Unlike Transferwise,which only supports fiat currencies, Blockchain Bank will support numerous currencies including Bitcoin,Ethereum, stablecoins, and even the high yielding coins in the DeFi space.
Fiat money is susceptible to the policies of its respective government and banking system. The central bank of China has imposed limits on how much RMB can be withdrawn and sent overseas and has made conducting business in growing nations difficult. The Nigerian Naira has also suffered a ridiculous rate of inflation which has reduced the buying power of Nigeria’s people. These factors make doing business troublesome which affects day to day lives. Cryptocurrencies offer to boast both the potential and flexibility fiat money lacks, with an added benefit of high-interest rates and its ability to be collateralized to assess loans. Financial instruments can even be built on top of one another via smart contracts.
With the rise of stablecoins like the USDC, the opportunities for use are limitless and the on-ramping process via Blockchain Bank has never been easier. Whether it be a better means of investing, conducting business digitally or even sourcing foreign talent, cryptocurrency is without a doubt the currency of choice for the future.Come explore Blockchain Bank and learn more.