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Decentralized finance (DeFi) has been the talk of the cryptocurrency industry in recent times. It goes beyond talk, with growth recorded in the industry as Aave (LEND) recently became the first DeFi token to reach a market cap of $1 billion. The growth of DeFi has a greater impact, though not obviously noticeable to many.
Data recently released by on-chain data analytics platform Coin Metrics reveals that the demand for DeFi has increased demand for stablecoins significantly. This has led to a daily increase in the combined market cap of stablecoins by $100 million over the last two months.
Co-founder of Coin Metrics Nic Carter said,
“Everyone got so excited about DeFi no one pointed out that stablecoins have been adding $100m/day since mid-July. DeFi yields/interest rates are clearly a vacuum sucking in a lot of stablecoins.”
Even though categorized as cryptocurrencies, stablecoins possess the characteristics of fiat money, which is lower volatility. This may explain why they have become so popular in the space for payments, and even holding money, as value remains relatively stable. Even before the DeFi boom, they have been in high demand, especially in China, where there are strict restrictions on cryptocurrencies but not on stablecoins, especially USDT.
At this rate, stablecoins are rapidly gaining dominance on the cryptocurrency landscape due to this growing adoption. The most in-demand, USDT, has been moving up the ladder rather fast. It has knocked XRP out of the third position a number of times and though temporarily, it seems it has come to stay as the third-largest cryptocurrency by market cap.
At time of writing, USDT has a market cap of roughly $14.1 billion while XRP is at $11.5 billion, a difference of well over $2 billion. As the demand for DeFi continues to rise, this difference may only get bigger over time, and stablecoin adoption may still go up, thus reinforcing their dominance.
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