Stablecoins are increasingly becoming key components in the world of cryptocurrencies. The asset-backed virtual currencies are not only growing in number but also on valuation. Now, stablecoins are leading the way across multiple parameters and gradually emerging as one of the big crypto stories of 2020.
Stablecoins market cap growing massively
Crypto market analyst Skew, brought to the fore the information about the massive growth of stabelcoins market cap via this tweet. Skew observed that stablecoins relevance in the crypto market was growing and had a shot at becoming the big crypto story of 2020.
Notably, there are over 40 stablecoins, showing the growing demand for these asset-backed cryptocurrencies. Each of them is pegged to a specific asset with the US Dollar being the most commonly used.
The entire market capitalization for stablecoins stands at $7.94 billion. Much of this valuation is however concentrated on Tether (USDT), the biggest stablecoin with its market valuation pegged at $6.37 billion.
Binance issued USD Coin (USDC) comes at a distant second with a $711 million valuation. Paxos Standard (PAX), Binance USD (BUSD), and True USD (TUSD) complete the top five with $245 million, $190 million, and $136 million valuations respectively.
Demand for stablecoins pushing market cap growth
The development of stablecoins was initially aimed at addressing the volatility problem that was plaguing the cryptocurrencies. The idea of an asset-backed cryptocurrency was quite appealing as holders would be shielded against the huge price swings thus protecting their investment.
However, the functionality of stablecoins has grown over the years as their use cases continue to expand. Cryptocurrency traders use these asset-backed virtual currencies as a hedging tool for storing their wealth when they are unsure of the market direction.
The stablecoins act as a viable medium for holding funds in anticipation of market signals before traders can jump in. As such, they are more preferable over regular cryptocurrencies like Bitcoin whose values can change dramatically thus affecting the value of holdings and the ability to make trades. They are also a preferred medium over fiat currencies as they are easy to deposit, convert and withdraw without all the fuss of dealing with banks and financial regulators.
This increased functionality has raised the demand for stablecoins resulting in the creation of more units thus boosting their total market cap. With the cryptocurrency market facing high volatility due to the current coronavirus pandemic, demand for stablecoins is likely to expand as traders continue to hedge their investments.