DeFi causes an increase in the supply of stablecoins like DAI, which would make them more stable. Arbitrage has become increasingly popular, which helps regulate the price of DAI.
The DAI stablecoin, which MakerDAO developed, is becoming more stable, according to CoinMetrics’ latest weekly report. The analytics firm explains that this crypto asset is crucial in many major projects. For that reason, its greater stability suggests that the entire ecosystem has also stabilized.
DAI’s objective is to maintain the parity of its value with that of the US dollar. If this does not happen, arbitrage opportunities arise to buy and sell between different protocols.
CoinMetrics explains that decentralized finance (DeFi) allows for greater arbitrage across different platforms. As a result, there is an adjustment in price, which leads to greater stability. As the DAI supply grows, there is greater liquidity and better arbitrage.
Since mid-2020, DAI’s transaction volume has increased alongside DeFi’s. Both arbitrage and the stability of the cryptocurrency have contributed to the growth of the activity. “A virtuous circle emerges, which helps the entire ecosystem to mature,” according to the report.
High Demand for DAI Causes Prices to Rise, and Vice Versa
When the demand for DAI is high, the price of the cryptocurrency rises slightly, which can happen for various reasons. For example, a sharp drop in the price of Bitcoin and other cryptocurrencies leads many people to “escape” to stablecoins. The study indicates that this kept the DAI price above one US dollar for a long time during 2020.
Anyone can create a new DAI by hosting collateral with other cryptocurrencies, such as Ether, on the MakerDAO platform. This has led to the fact that, when there is greater demand for DAI, the supply grows.
CoinMetrics analytical data shows strong growth in DAI supply, which started in mid-2020 and grew in December. It is possible to observe that, with higher supply, the price falls below USD 1.
According to the study, the launch of the Uniswap Governance Token (UNI) in September 2020 increased the volume of Ethereum transactions. Its liquidity mining program, which included the ETH/DAI pair, led many to participate and generate more DAI. The supply reached more than 600 million, so the price began to decline and stabilize towards parity with USD 1.
The Supply of Tether (USDT) on Tron Is Almost the Same as on Ethereum
The CoinMetrics report also addresses issues related to other stablecoins such as Tether (USDT). It mentions that the USDT supply on the Tron (TRX) network is close to the one on Ethereum. In recent days, there were 21 billion USDT on Tron versus 23 billion on Ethereum. More precisely, the combined supply share (the percentage of the shared total) is 52.7%.
This suggests that the use is different on each blockchain. While large amounts of USDT move on Ethereum, small/retail transactions take place on Tron every day.
The number of active addresses with USDT is larger on Tron than on Ethereum. In recent days, there were 262,540 active addresses with Tether on Tron and only 89,650 on Ethereum.
Centralized stablecoin Tether is the one with the largest market capitalization. Despite its contribution to the world of cryptocurrencies, it has had trouble proving the US dollar funds behind it.
By Alexander Salazar