On-Chain Markets Update by Lucas Outumuro, IntoTheBlock
When Curve launched back in February 2020, many might have thought a DEX for stablecoins was a niche segment. Fast forward to today and Curve is averaging over $300 million in daily volumes, and has recently seen competing moves from the likes of Uniswap and Coinbase as the market for pegged assets expands.
Stablecoins continue to grow quickly, roughly quadrupling so far in 2021. Driven partly by usage in DeFi applications, stablecoins have amassed an aggregate market cap of over $100 billion.
The increased use of stablecoins has led to greater demand for low slippage, highly-liquid avenues for trading them. Being a first mover, Curve has benefited from this trend with their total volume traded growing 10x within the past 6 months.
Beyond stablecoins, support for other pegged-assets—such as WBTC and other BTC-pegged ERC-20 tokens—has expanded the addressable market. This is evident in the Lido staked Eth (stETH) pool becoming the most liquid one with over $2.3 billion in total value locked.
The growing demand for this type of trading has led to large exchanges setting up competing propositions. Within DeFi, the most apparent case of this is with Uniswap v3. With the release of a lower tier of fees of only 0.05%, Uniswap encouraged the creation of liquidity pools for stablecoins and other pegged-assets.
Benefiting from the increase in capital efficiency, these pools are still able to generate high returns using concentrated liquidity. Stable asset pools are also less risky for LPs given that having a 1-to-1 peg reduces the significance of impermanent loss. The traction of these pools has been undeniable, with the USDC/USDT pair quickly becoming the second most liquid pool.
The USDC/USDT pool in Uniswap v3 already reached an all-time high volume of $297 million, almost triple the all-time high in the Uniswap v2 pool. Although volumes for the v2 pair remained high for the first few days after the v3 launched, they have since dropped by approximately 90%.
Impressively, Uniswap’s v3 USDC/USDT pool was able to handle a volume to TVL ratio of 2.65 times on May 18, while the v2 pool had a ratio of 0.37 during its all-time high on May 13. This highlights the increased capital efficiency and growing competition for stablecoin trading.
Coinbase employees seem to have been closely monitoring the launch of these pools, announcing the introduction of nine stable pairs with no fees for market makers and only 0.01% for takers. For an exchange with notoriously high fees typically, Coinbase’s move points to their conviction in this space.
Overall, trading for pegged assets has gone from basically non-existent to arguably a multi-billion opportunity since Curve’s inception just over a year ago. While competition from Uniswap might not have shocked many in DeFi, having Coinbase follow their lead marks the changing tides and growing influence of DEXs within crypto.