Table of Contents
ToggleKey Takeaways:
- USDC and DAI have experienced more instances of depegging than Tether (USDT) and Binance USD (BUSD).
- USDC and DAI spent significant time below the $1 mark, with USDC dropping to $0.87 in March 2023 due to the collapse of Silicon Valley Bank.
- Maintaining the peg of a stablecoin requires robust governance, adequate collateral, liquidity, market confidence, and adoption.
- Despite its controversies, Tether (USDT) has shown greater stability compared to USDC during the same period and has significantly increased its market share.
In the world of digital assets, stablecoins play a pivotal role as they provide a safe haven for traders and investors in times of crypto market volatility. However, these dollar-pegged crypto assets are not immune to fluctuations themselves, and some, such as USD Coin (USDC) and Dai (DAI), have faced de-pegging challenges more frequently than others. A recent study by S&P Global analysts sheds light on the de-pegging trends of these stablecoins over the past two years.
Analyzing Stablecoin De-Pegging:
A recent research paper authored by Dr. Cristina Polizu, Anoop Garg, and Miguel de la Mata examined the de-pegging behavior of five major stablecoins: Tether (USDT), Binance USD (BUSD), Paxos (USDP), USD Coin (USDC), and Dai (DAI). The study focused on evaluating the duration and frequency of de-pegging events.
The analysis revealed that USDC and DAI had spent more time below the $1 peg than their counterparts, USDT and BUSD. During the most extended de-peg event, USDC remained below $0.90 for 23 minutes, while DAI dropped below $1 for 20 minutes. In contrast, USDT experienced only a brief dip below $0.95 for one minute, and BUSD maintained its peg without dropping below $0.975 between June 2021 and June 2023.
Furthermore, the study highlighted that USDC and DAI experienced more frequent de-pegging events than USDT and BUSD throughout the two-year observation period. While some one-minute de-peg events were attributed to noise, longer de-pegging periods were considered more meaningful.
Read On: Why did USDC Stablecoin Break its Dollar Peg?
The Importance of Stability
The stability of stablecoins is crucial for their credibility and usefulness in the crypto market. It relies on several factors: governance, collateral reserves, liquidity, market confidence, and adoption. The study emphasized the importance of these elements in maintaining the peg and overall stability of stablecoins.
Tether’s Resilience
Despite ongoing controversies and mainstream media scrutiny, Tether (USDT) has demonstrated greater resilience compared to USDC. USDT has maintained its peg with minimal de-pegging events, and its supply has increased by 25% in 2023 alone, reaching 83 billion USDT. This growth has solidified Tether’s position as the dominant stablecoin, with a market share of 67%. In contrast, USDC has seen a 41.5% reduction in supply, causing its market share to decline to 21% over the same period.
Conclusion
Stablecoins are a critical component of the crypto ecosystem, providing traders and investors with stability amid market turbulence. While de-pegging events can occur, the study highlights the importance of governance and other factors in maintaining a stablecoin’s peg.
As the crypto market continues to evolve, stablecoins will remain a focal point, and their stability will play a pivotal role in shaping investor confidence and adoption.
Source: CoinTelegraph
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FAQs
What are stablecoins?
Stablecoins are digital assets that are pegged to a stable value, typically a fiat currency like the US Dollar (USD).
How do stablecoins maintain their peg?
Stablecoins maintain their peg through factors such as governance, collateral reserves, liquidity, market confidence, and adoption.
What is the role of stablecoins in the crypto market?
Stablecoins provide a safe haven for crypto traders and investors during periods of market volatility and serve as a bridge between the crypto and traditional financial worlds.
Why has Tether's market share increased significantly?
Tether's market share has grown due to its minimal de-pegging events and a 25% increase in supply in 2023, solidifying its position as the leading stablecoin.
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