Stablecoins have become the most striking product market fit among cryptocurrencies, with their growth trajectory reflecting extraordinary adoption rates. The market has expanded from a total market value of $30 million in 2018 to over $250 billion today, with a compound annual growth rate of 263%. Originally used as native collateral and settlement mechanisms for cryptocurrencies, especially by market manufacturers and arbitrageurs, stablecoins have evolved into widely adopted financial primitives. Nowadays, trading companies and market manufacturers routinely hold stablecoins on their balance sheets, while decentralized finance (DeFi) protocols have deeply embedded stablecoins into collateral structures and trading pairs. Centralized trading platforms are increasingly shifting from Bitcoin collateralized perpetual contracts to stablecoin based margin trading. In addition to internal applications of encryption, stablecoins are also used as a means of value storage among citizens in areas of high inflation or political instability, as well as gaining traction as a fast and low-cost remittance tool. This wider adoption benefits from significant improvements in infrastructure, including more efficient deposit and withdrawal channels, high-throughput low-cost blockchain, better designed wallets, and user-friendly applications based on private key management advancements.
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Stable coin category
The current stablecoin ecosystem includes several different types of stablecoins, mainly distinguished by their collateral support, degree of decentralization, and mechanism for maintaining price linkage. Stablecoins supported by legal tender dominate the market, accounting for over 92% of the total stablecoin market value. Other categories include stablecoins supported by cryptocurrencies, algorithmic stablecoins, and recently emerged strategy supported stablecoins. Broadly speaking, stablecoins are digital tokens that maintain a 1:1 value with a predetermined currency (usually the US dollar).