The visual above shows a Q1 User Activity map of USDT, USDC and DAI - the 3 most popular stablecoins - on Ethereum.
Each point is an Ethereum address, and each colored line is a token transfer. The graph is annotated with labels for known exchanges and DeFi platforms.
Each line on the graph represents two connected user addresses. Think of this line as a spring. These springs pull the addresses in different directions until they settle into an equilibrium. The more transactions between a group of addresses, the closer together they will be on the graph.
The resulting layout reveals the inherent structure of the network:
Addresses that only interact with DeFi applications are clustered together on the right.
Addresses that solely use stablecoins to transact with centralized exchanges are clustered together on the left.
Addresses interacting with both groups - Coinbase, for example - are located in the middle.
Overall, our analysis reveals that each stablecoin has a distinct use case:
USDT is used mainly for arbitrage on centralized exchanges in Asia.
Notice the concentration of activity around Huobi, Binance, and other Asia-based centralized exchanges on the left.
Late last year, Coindesk reported that traders in China are working around crypto restrictions by using USDT, which is now the largest stablecoin by both market cap and trading volume.
USDC is gaining ground in DeFi.
USDC activity is happening on both centralized (on the left) and decentralized (on the right) exchanges.
Just last week, Coinbase announced $1.1 million of USDC had been deposited months ago into pools powering two of the most popular DeFi apps on Ethereum: Uniswap and PoolTogether.
DAI has the vast majority of its usage occur in the DeFi space.
Most transactions are happening on decentralized platforms on the right.
The most active cluster is related to trades on the Oasis/Eth2Dai DEX.
Compound and dYdX lending and borrowing activity is also noticeable.
The only centralized exchange with meaningful DAI volume is Coinbase, which added the token last year in response to user demand for a DAI/USDC trading pair.
The Flipside: The combined graph can be thought of as a spectrum, ranging from centralized (USDT) to decentralized (DAI). But how decentralized is DeFi really, if it relies on stablecoins that themselves rely on centralized banking systems?
Stablecoins aim to be cash on the blockchain. Unlike other cryptocurrencies, the value of a stablecoin is tied to another asset - usually the US dollar, but potentially other fiat currencies or even gold. The remarkable growth of the stablecoin market in the past year is telling of the increasing need for less volatile digital assets that can be trusted to store value and exchange internationally.
USDT and USDC are fiat-collateralized, meaning that the tokens are backed by USD held in reserves. USDT is widely accepted by exchanges, though Tether’s opaque accounting practices have led to suspicions that USDT is not actually backed in full. USDC, on the other hand, is issued by Coinbase and Circle through a joint venture, and has secured all required licensing to operate in the United States.
MakerDAO’s DAI takes a different approach. It relies on overcollateralization with non-USD crypto assets to maintain its dollar peg. However, as you may recall from our last blog post on Maker, USDC was recently added as a collateral option in order to improve liquidity, which raised questions about DAI’s decentralization and censorship resistance moving forward.
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