More than a decade after the first stablecoin appeared, the US dollar still reigns supreme among cryptocurrencies.
The stablecoin market has grown to a total capitalization of over $306 billion. data From DefiLlama’s show. According to JP Morganapproximately 99% of the stablecoin market is still denominated in US dollars.
The advantage of stablecoins pegged to the US dollar is half inertia and half convenience, according to Concordium CEO Boris Boler-Bilowitzki. “The dollar is the world’s reserve currency, so it’s the natural default for anyone building financial infrastructure,” he said. decryption.
But he believes the deeper problem is that most projects are optimized for adoption rather than fundamentals, as it’s easier to obtain banking partnerships and exchange listings when tracking something familiar like the US dollar.
“Ironically, TradFi’s pursuit of legitimacy has replicated TradFi’s vulnerabilities with its central control, regulatory exposure, and sensitivity to U.S. monetary policy,” Boler-Birowitsky said.
The dollar remains the world’s primary reserve currency and the most widely used unit for trade invoices, cross-border debt, and foreign currency bond issuance. However, its long-term advantage is increasingly being questioned.
Geopolitical divisions and sanctions have pushed de-dollarization into the mainstream of discussions among investors and policymakers. China, in particular, has made reducing its dependence on the dollar a strategic priority in international trade.
Nevertheless, the cryptocurrency industry has doubled. Non-dollar stablecoins have struggled to gain traction. There are only three non-USD stablecoins in the top 50 by market capitalization.
The first is authorizedLouvre Peg, Garantex Link A7A5. The second is Circle’s EURC, with a volume of just $8 million in the last 24 hours, and the third is a token that tracks the Brazilian Real.
not very stable
Not all USD coins are created equal. Ethereum’s DAI is considered a soft-pegged stablecoin because it is collateralized by other cryptocurrencies rather than fiat dollars. Ethena describes its USDe as a “synthetic dollar” that is “backed by crypto assets and corresponding short futures positions.”
However, algorithmic stablecoins that maintain pegs through smart contracts have image issues following the collapse of TerraUSD in 2022. Algorithmic stablecoins have lost their pegs, dragging multiple companies down. This failure wiped out tens of billions of dollars in value and left a lasting scar on the industry.
“Post-Tera, there has been limited demand for purely algorithmic stablecoins, and the market has moved to a model where stability is engineered through real liquidity and the ability to perform reliably across different blockchains,” said Akbar Thobani, co-founder and CEO of sFOX. decryption.
Another possibility is to break the dollar monopoly by tying stablecoins to a basket of goods or assets. In 2024, Tether, the creator of USDT, the top US-pegged stablecoin that will control 60% of the market. launched Alloy is a token pegged to the US dollar, but overcollateralized with Tether Gold, which is backed by physical gold stored in Switzerland.
However, it has not become popular. The fully diluted valuation would be just under $50 million. As of this writing, the 24-hour volume was just $19,000. CoinGecko.
Stablecoins pegged to a basket of currencies or assets are also being considered.
Silk, a stablecoin developed by Secret Network’s Shade Protocol, has adopted an overcollateralized basket-based model aimed at mitigating the risk of a reflexive death spiral following the collapse of Terra.
It is overcollateralized and is not pegged to a single currency but to a weighted basket of world currencies and commodities such as the US dollar, euro, Canadian dollar, Japanese yen, gold, and Bitcoin. This basket is designed to absorb volatility in individual assets while preserving purchasing power over the long term. According to the current FDV is $1.6 million. coin gecko.
Carter Wootzel, founder of Shade Protocol, said: decryption He calls creating a new non-US dollar-denominated stablecoin “the ultimate Sisyphus challenge” and cites liquidity, market makers, and compliance as obstacles to large-scale adoption.
He said he chose the basket model for stablecoins because he disdained the fact that the US dollar could be printed and inflated, calling it “the ultimate hidden tax.”
“At the same time, Bitcoin lacks the quick rails needed to minimize volatility and perform more stablecoin-like operations. From a first-principles perspective, a basket-pegged stablecoin makes sense,” he said.
“But often, due to what the market currently wants and the constraints that arise from contrarian takes, these types of experiments do not last long enough to experience a golden age. However, I believe that many of these experiments are laying the foundations for a true global currency.”
“I think inevitably these models will continue to be used,” he said, acknowledging that SILK was “probably 10 years ahead of its time.” If the dollar’s global dominance recedes, “we’ll see a lot more experimentation with basket pegs,” he suggested, adding that if the dollar’s dominance strengthens, “payments and liquidity are already pretty much unified, so it would make less sense to have these kinds of tokens.”
Is it better than Fiat?
Already in 2019, the Bank for International Settlements said “In many countries, stablecoins linked to a basket of foreign currencies may prove more stable than domestic currencies.”
Algorand Chief Marketing Officer Mark Vanlerburg said while interest in basket-based designs is growing at institutional and policy levels, “a fiat-backed model is the easiest to understand for financial institutions and regulators.”
“The idea that a basket of currencies can be more stable than a single national currency is intuitive, especially in countries with high inflation or unstable exchange rates,” he said.
Commodity-backed tokens, such as gold-backed tokens and other commodity-linked products, tend to function as niche stores of value or financial products rather than as everyday money. “As such, they are not scalable in the same way as stablecoins pegged to fiat currencies,” he added.
There are other drawbacks as well. Baskets are harder to explain, harder to regulate, and more complex to operate. Liquidity also tends to be fragmented, as markets are typically concentrated in simple and widely used units of account.
“That said, we will see renewed interest in diverse designs, especially from sovereign actors and regional blocs who want financial infrastructure independent of Washington,” Vanlerberg said.
Wotzel said basket-pegged stablecoins are also ultimately constrained by liquidity providers at the moment.
“Who is going to take on both sides of the trade? How much permanent loss will they be forced to incur? How much volume and demand will there be to offset this permanent loss? If basket-pegged stablecoins overperform the dollar too much, it will be difficult to find someone who will essentially ‘short’ the basket as a form of liquidity provision,” he said.
“Protocols will then be forced to subsidize these liquidity providers, and the system can only actually scale up in terms of utility in relation to the liquidity actually available on the CEX/DEX. Perhaps there will be advancements in redemption methodologies where protocols take the other side of the trade, but this could also lead to weird runs on banks.”
Amid rising political tensions, financial experts say a decline in confidence in the dollar could lead to further de-dollarisation. It is unclear whether stablecoins will follow suit.
But Boler-Bilowitzki argues that faith in the dollar is not the only reason cryptocurrencies should explore other options.
“If cryptocurrencies are serious about becoming an independent infrastructure, the dominance of the US dollar should end, but only if the market starts valuing long-term stability over short-term convenience. For now, the incentive structure favors a US dollar peg because that is what financial institutions understand and that is what users expect.”
“Over time, this could create a stablecoin situation where USD-backed stablecoins operate alongside local ones, balancing global liquidity with local currency demand and improving exchange efficiency.”
But over a long enough time horizon, dependence on a single currency becomes a liability. “If cryptocurrencies are intended to be the infrastructure for the next 50 years, rather than the next five, then they need to be designed in ways that are not structurally tied to a country’s monetary policy,” he added.
“The question is whether the market will reward that kind of long-term thinking.”
