Cryptocurrency can be a polarizing topic. Some believe it will change the world. They imagine a future where bitcoin serves as a reserve currency, we buy our chai tea lattes at Starbucks with digital tokens and share them on Web3-native social platforms, all seamlessly routed through decentralized channels.
Then there are those who call it a complete waste of space — an insatiable capitalist money grab riddled with Ponzi schemes and shameless celebrity promotions (Kim Kardashian, if you’re reading, I’m looking at you).
Even many skeptics, however, recognize the potential of blockchain technology and the impact it could have on society.
One of the most interesting components of blockchain technology is stablecoins. These are simply fiat currencies represented on a blockchain, enabling users to avoid the extreme volatility of cryptocurrencies while still benefiting from blockchain features. That means avoiding the portfolio roller coaster while still accessing advantages like availability, speed, and low transaction costs.
Because so much crypto activity settles in USD, the largest stablecoins are dollar-denominated. In a year when the dollar outperformed other major currencies while nations around the world wrestled with runaway inflation, stablecoins giving people a way to park wealth in USD—rather than in often unstable local currency—became especially attractive.
So which stablecoin is most popular, and how are they growing? I dug into what may be the least exciting crypto by price volatility but remains fascinating for other reasons.
This is the stablecoin report.
Timeline — the growth of stablecoins
I look back on early 2020 as the start of a “new paradigm” in crypto. COVID-19 surfaced in the first quarter, and after the March crash, as the world tried to assess the pandemic’s meaning, cryptocurrencies surged.
Crypto took center stage: prices, trading volumes, and liquidity expanded rapidly. By 2022 we entered a new era of higher interest rates as the consequences of years of expansive money printing arrived and inflation flexed its muscles.
That environment triggered the collapse of many tokens. Bitcoin fell from a high near $69,000 to below $20,000, and capital flowed out of crypto. Some stablecoins weathered the storm better than others. The timeline of the last two years shows how dramatically the market shifted.
Truly, a rise from $20 billion to $160 billion in two years — an eightfold increase — is remarkable.
When examining the chart, one obvious presence stands out: Terra.
Decentralized vs centralized
Attracted by the promise of a decentralized stablecoin, many crypto enthusiasts bought TerraUSD (UST). Its design relied on a circular logic where the stablecoin was supported by Luna, a token that itself lacked hard collateral. In short, it was undercollateralized, and the structure collapsed, dragging much of the crypto ecosystem down with it.
I was involved, too. I knew the model was flawed but thought it might survive longer than it did. I wrote about my experience and how I ultimately reduced my losses and sold my UST, swallowing a painful hit to both my portfolio and my pride.
Terra is now history. The remaining widely known decentralized stablecoin is DAI, with a market capitalization of around $6 billion. But in my view, DAI is as fundamentally broken as Terra. The consequences may be less catastrophic and not necessarily a death spiral, but I see little chance of DAI ever becoming a dominant, trusted stablecoin.
The problem is the economics. Overcollateralization requires that to mint $100 in DAI you must post roughly $150 of collateral — an inefficient mechanism. Added to that is significant exposure to centralized assets like USDC, undermining decentralization claims.
To chase decentralization, DAI’s model sacrifices capital efficiency. In a world of rising interest rates, that approach is hard to sustain. And no matter the rhetoric, DAI is not truly decentralized.
A genuinely decentralized stablecoin would be an ideal outcome, but no practical path currently exists to achieve it. Perhaps one day it will be possible, but I don’t have the answer. As for DAI, I expect it to either fade away slowly or undergo drastic governance changes that could fundamentally alter its peg or purpose.
Centralized stablecoins — is Tether’s throne under siege?
That brings us to centralized stablecoins. It’s less romantic, but at least they tend to work.
Tether (USDT) is the original and remains central to liquidity in the crypto market. It continues to face scrutiny over its reserves, and after the Terra collapse its market price briefly dipped to around $0.95 as confidence wavered.
Tether has reportedly redeemed large portions of its reserves without issues, moving sums that would challenge many fractional-reserve banks. Still, holders want the ability to buy and sell at $1, whenever and wherever they choose.
Circle’s USDC increasingly competes and now sits in second place. I modeled the market to show how USDT’s share has been eroded by alternatives, a trend driven largely by persistent concerns around reserve transparency.
2022 contagion
This year was a difficult one for crypto markets. Stablecoins provide a clear lens on that stress, as capital packed up and exited the system.
I charted how different stablecoins performed from January through the present, illustrating how Circle narrowed the gap on Tether. As Tether shrank by roughly $10 billion, Circle’s USDC actually grew by about $2 billion.
Binance USD and FTX?
Binance USD (BUSD) has also established itself. At roughly $22 billion it ranks among the largest stablecoins.
Binance, the world’s largest crypto exchange, has promoted BUSD aggressively. The exchange recently removed USDC from some trading pairs and automatically converted holdings to BUSD, which helped boost BUSD’s market capitalization.
FTX founder Sam Bankman-Fried called this competition “the second big stablecoin war.” FTX itself has plans to launch its own stablecoin.
With many major exchanges introducing or promoting stablecoins, important questions arise about the market’s structure. If issuers manage reserves responsibly and report transparently, having multiple stablecoins can be healthy. But practices vary, and some issuers are clearly stronger than others.
Conclusion and the outlook
To summarize, the past few years have been transformative for cryptocurrencies and, by extension, stablecoins. Stablecoins are a critical bridge that helps onboard users into crypto by offering exposure to blockchain rails while avoiding price volatility. They fill a real use case in an industry known for unpredictability.
I put this report together because the stablecoin market has evolved rapidly, and now we’re entering a new phase. Binance, FTX, and Circle are all vying for ground against Tether. Advocates will continue to call for a truly decentralized stablecoin, but until a viable theoretical and practical model exists, that remains aspirational.
Sure, I’d like a decentralized stablecoin. I’d also like to wake up sounding like Beyoncé. Both are unlikely today, so for now centralized stablecoins will dominate.
It will be interesting to revisit these rankings a year from now and see how the market has shifted. For the moment, Tether still rules the roost — but the pack is chasing hard.