The analysis focused on the on-chain flows of the three stablecoins, looking exclusively at transfers between addresses on Ethereum, thereby excluding USDT flows on top of other networks such as Bitcoin (via the Omni layer), Tron, EOS, and others. Overall, the company found that USDT is predominantly used for arbitrage purposes on East Asian cryptoasset exchanges, with particular concentration on Binance and Huobi, while DAI is almost solely used within the decentralized finance (DeFi) ecosystem, with the Oasis/Eth2Dai decentralized exchange accounting for the most activity. Interestingly, the company demonstrated that USDC now finds usage both on centralized exchanges and within DeFi, with the latter supported primarily through Coinbase.
Flipside Crypto’s findings highlight several interesting themes surrounding the development of stablecoins. While the problems surrounding Tether, such as its lack of transparency and regulatory oversight, its ongoing legal problems with the NYAG, and an arguably unhealthy relationship with iFinex, have been heavily discussed within the cryptoasset community, Tether continues to dominate the stablecoin market. USDT on Ethereum has seen particularly large inflows, with its network value growing from $2.29 billion at the beginning of January to $5.62 billion at the end of April. Investors and traders may simply be using Tether as a trading mechanism for short term arbitrage and hedging purposes, rather than treating it as an asset per se, in which to hold value over the medium or long term. Indeed, further analysis surrounding the average and median holding times for USDT versus other stablecoins may yield valuable insights as to whether investors view Tether as a safe asset or merely a short-term trading mechanism.
At the same time, the actual usage of DAI raises some interesting questions. For one, it highlights DAI’s reliance on Coinbase for adoption beyond the DeFi community. While Coinbase has proven to be particularly supportive of the stablecoin, as evidenced by its exchange support among other services, Coinbase’s support of DAI highlights both a lack of adoption from other centralized exchanges, pointing to a possible East-West divide, given Coinbase’s focus on Western markets, as well as the possible centralization risk posed by an increasing concentration of DAI within Coinbase’s services and wallets.