Stablecoin supply grew by 388% this year, driven by DeFi and derivatives

The market for stablecoins experienced breakneck growth in 2021, with the supply for dollar-backed cryptocurrencies surging by 388%, according to data compiled by The Block Research. 

As indicated by The Block Research's 2022 Digital Asset Outlook report, the aggregate supply of stablecoins has increased from $29 billion at the start of 2021 to more than $140 billion. That growth benefited a swathe of stablecoins, including tether (USDT) and USD coin (USDC), which is managed by a consortium that includes Circle and Coinbase. 

Several factors contributed to the surge in the outstanding supply of stablecoins, which historically have been used by high-speed crypto trading firms as a way to dampen volatility when trading between different cryptocurrencies. Over the course of 2021, retail traders parked stablecoins on decentralized finance protocols as a way to tap into juicy yields. 


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The growth of the derivatives market was another tailwind. Most derivatives venues settle futures contracts in stablecoins, noted Tether's Paolo Ardoino. 

Still, the market faced added scrutiny in 2021, as noted by The Block Research. While legal headaches have long hung over Tether, the entire market came under focus with regulators questioning the possible systemic risk such coins might poise to the market and whether they should come under a more direct regulatory framework. A report by President Biden's Working Group on Financial Markets along with other agencies suggested introducing new legislation to require stablecoin issuers to be regulated similarly to banks. 

Looking to the future, Circle's CEO Jeremy Allaire said that 2022 will mark the year in which companies turn to stablecoins to improve payments. He said that more people and companies are wanting to hold stablecoins, which is generating demand for them around the world.

"We are seeing demand across many fronts simultaneously...DeFi, CeFi, but also increasing amounts of general usage for payments," he said.

Read the full report here