74% of stablecoins are issued on Ethereum, according to new report

Three-quarters of all stablecoins are now issued on the Ethereum blockchain, compared to only half of stablecoins a year ago. The collective value of stablecoin transactions on Ethereum also now exceeds that of ether (ETH), the blockchain’s native cryptocurrency, according to an Ethereum DeFi report released today by ConsenSys.

Ethereum and what happens on the popular platform is of great importance to the blockchain and cryptocurrency world because the vast majority of DeFi protocols and stablecoins now run on Ethereum. ConsenSys is a blockchain software developer for Ethereum.

Two of the biggest cryptocurrency trends of 2020 were the rise of decentralized finance (DeFi) and the growth of stablecoins. The decentralized finance (DeFi) market capitalization now exceeds US$45 billion, and the total value locked in DeFi protocols has surpassed US$25.5 billion.

Rapid rise of stablecoins

According to the ConsenSys report, more than $1 trillion in stablecoins were traded on Ethereum last year. Tether, the most popular stablecoin, alone settled US$580 billion on Ethereum in 2020 while ETH’s transaction volume was US$385 billion.

As of January 1 this year, 74% of all stablecoins were issued on Ethereum and worth about US$20 billion, according to the report. And the stablecoin population has evolved from previously mostly fiat-backed (e.g. USDC, USDT) to many “new flavors” such as crypto-collateralized (e.g. USDT), interest-bearing (e.g. cUSDC, aUSDC, aUSDT), synthetic (e.g. .sUSD), and algorithmic (eg AMPL, yUSDC).

The report notes that as stablecoins gain prominence, they have also drawn increased government scrutiny — most recently in the form of the controversial STABLE Act. DeFi has also become the subject of regulatory discussions.

SEC Commissioner and “Crypto Mom” ​​Hester Peirce told Forkast.News in an interview that regulating DeFi would be a challenge “because most of the way we regulate is through intermediaries – and when you really want something building that is decentralized, there is no intermediary.”

Regulators can help provide clarity, Peirce said. “It’s important for us to provide help there for people trying to understand, ‘How does DeFi interact with the securities laws?'”

Demand for DeFi liquidity

Other key trends from 2020 include the increased demand for DeFi liquidity. Decentralized exchanges (DEXs) such as Uniswap surged in popularity in mid-2020, leading to new inflows of value signed on Ethereum – from the wrapped tokens (such as Wrapped Ethereum, Wrapped Bitcoin) and decentralized storage network Filecoin, to a greater demand from institutions and other blockchain-based protocols. The report predicts that the momentum will continue, and more protocols will launch wrapped versions of their tokens on Ethereum in 2021.

But regulatory and technical challenges remain, and new types of standards, such as ConsenSys’ proposed universal token for assets and payments, could be a way to bring traditional finance to decentralized finance, the report says.

Fabian Vogelsteller, founder and chief blockchain architect at LUKSO and former Ethereum developer, said in an earlier interview with Forkast.News: “it’s all about standards [such as ERC-20 and ERC-725]. It’s all about defining the basic pieces.”

Growth of non-fungible token (NFT) designs and marketplaces

Within DeFi, NFT designs and marketplaces have gained traction in 2020 and are poised for greater growth, according to the report. NFTs provide ownership rights to digital art, games and other virtual assets. Digital artist Mike Winklemann, also known as “Beeple” sold a collection of NFTs with a winning bid of $777,777,777.

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AND THAT’S ALL SHE WROTE!!! The auction ends at a ridiculous last second bid of $777,777. This brings the total PRIMARY MARKET sales from @beeple’s collection to over $3,500,000

CONGRATULATIONS TO THE LEGEND BEEPLE and thanks to the whole community!!! https://t.co/pp4fm0j6iJ

— Nifty Gateway (@niftygateway) December 13, 2020

In addition to the explosive potential of NFTs, NFT marketplaces have flourished since collectibles marketplaces like CryptoPunks and CryptoKitties came on the scene. There are now at least 27 unique digital art marketplaces on Ethereum, with SuperRare, MakersPlace, Async Art and Known Origin facilitating up to US$8 million in sales since they launched, according to the report.

Community-based social tokens are also gaining ground as artists and creators try new ways to connect with their fans and monetize online given the ongoing Covid pandemic. Celebrities like Lil Yachty, Akon and Ja Rule are launching social tokens through Roll, a platform that allows users to instantly send social money or “fancoins” to another user on the network. The estimated size of the social token market is US$81.2 million, according to the report.

DeFi’s vulnerabilities

DeFi holds a lot of potential, but the report points out that the risks of smart contract security are real, as evidenced by hacks and abuses.

Several DeFi protocols were victims of flash loan-based exploits in Q4 2020. Harvest Finance lost US$34 million, Cheese Bank lost US$3.3 million, Akropolis suffered a US$2 million loss, and Value DeFi lost US$6 million, according to the report.

See related article: Is DeFi a $10 Billion Ponzi Scheme?

“As long as there is value on the Internet, there are going to be people who are intent on trying to take it. But in other cases it is a truly new invention, such as Aave’s ‘flash loan’ or the ‘flash swap’ by Uniswap, which has enabled arbitrage schemes on a scale and speed not previously imagined,” the report said.

DeFi trends to watch in 2021

New tranche loan products and Ethereum 2.0 derivatives are a trend to watch in the first quarter of 2021, according to the report. Tranche lending involves the use of derivatives to allow users to mitigate their exposure to interest rate or market price volatility by depositing their digital assets into pools.

After the successful launch of the Ethereum 2.0 Beacon Chain, the network is transitioning to be cheaper and more scalable with Layer 2 technologies such as rollups that reduce the burden of computation and primarily use the blockchain for its security guarantees.

But with a move from “proof-of-work” to “proof-of-stake” protocols and Ethereum’s high gas fees, rival blockchains dubbed “Ethereum killers” have emerged to challenge Ethereum’s dominance and first-mover advantage too late

“Currently the leader here is Ethereum with ETH2.0. And of course we’re hot on their heels, nipping at them,” Charles Hoskinson, founder of IOHK and Cardano, told Forkast.News in a recent interview.

“Polkadot or EOS or Tezos or Cardano – we are trying to say that proof of stake is much better than proof of work. At least the Bitcoin flavor of proof of work. And ETH2.0 is the 800-pound gorilla that’s really pushing it,” added Hoskinson, who co-founded Ethereum but left the company in 2014 before its public launch.

Solana, another challenger to the Ethereum blockchain, has its sights set on capturing the Asian DeFi market. Hong Kong-based cryptocurrency exchange FTX has built its decentralized exchange called Serum on the Solana blockchain. In November 2020, Serum generated US$111 million in volume, significantly less than the US$17 billion in volume on Ethereum-based DEXs in the same month, but also not negligible, the report said.

See related article: ConsenSys’ Joe Lubin on Ethereum, DeFi and Regulation in 2021

For now, ConsenSys doesn’t seem much worried about competition for Ethereum. According to the report, “interoperability between blockchains remains an active research space, and while we predict more projects to consider moving to other protocols before ETH 2, we think the seriousness of Ethereum will push more activity to Layer 2- protocols that are already interoperable with Ethereum.”