hashport: The State of Stablecoins

9 min readAug 15, 2022


Our community has spoken and we have listened. Earlier this month, hashport integrated three of the most popular stablecoins; DAI, USDT, and USDC within its growing list of supported tokens.

In this article, we will learn about the stablecoins integrated with hashport, how they function, and their status in the current market.

But first, what is a stablecoin?
Digital assets and cryptocurrencies are highly volatile and thus unable to perform the three basic functions of money, that’s acting as:
a) A stable store of value
b) A practical means of payment
c) A reliable unit of account.

This is where stablecoins come in handy. Stablecoins were developed to help cryptocurrencies maintain a stable value, backing them with fiat currencies, cryptocurrencies, commodities, and even algorithms.

Typically, these stablecoins track the prices of national currencies such as the US Dollar, the Euro, the British Pound, or commodities such as gold.

Types of Stablecoins
Different stablecoins have different stabilisation mechanisms.

In a centralised context like USDT and USDC, this could require the participation of intermediaries like an issuer or a custodian to mint and burn tokens to maintain the peg.

In a decentralised context, such as the case for DAI, smart contracts and algorithms are used to maintain the peg, alongside secondary stabilising mechanisms like stability and penalty fees, governance tokens (MKR) used as reserves etc.

Stablecoins usually fall into one of four main categories:

a) Off-chain fiat-backed stablecoins:
An issuer or custodian is required.
Example: USDT and USDC are fiat-backed stablecoins pegged to the USD.

b) Off-chain commodities-backed stablecoins:
An issuer or custodian is required.
The collateral can be gold, oil, real estate.
Example: Tether Gold (XAUT), Paxos Gold (PAXG)

c) On-chain crypto-backed stablecoins:
An issuer or a custodian is not required.
Example: The DAI stablecoin is a decentralised, collateral-backed cryptocurrency whose value is soft-pegged to the US Dollar.

d) On-chain algorithmic stablecoins:
An issuer or a custodian is not required.
Example: TerraUSD (UST)
For this article, we’ll exclude algorithmic and commodities-backed stablecoins and briefly examine the fiat and crypto-backed stablecoins that are currently supported on hashport. In our case, hashport currently supports USDC ($9.24M USDC now minted on Hedera), USDT, and DAI.

How do USDC and USDT work?
Off-chain fiat-backed stablecoins like USDC and USDT are minted and burned using the below mechanisms:

A user deposits USD into the issuer’s (Tether, Circle) account. Upon confirmation, the issuer mints an equivalent amount of stablecoins via its smart contract on the relevant blockchain.

To redeem his stablecoins for fiat, the user sends his stablecoins to the issuer’s address, which are then removed from circulation and burned. This mechanism maintains a 1:1 ratio at all times between the stablecoins’ circulating supply and the fiat backing them.

A custodian or an exchange refunds the equivalent fiat back to the user. In the latter, the exchange trades the stablecoins against its own funds, and then either resells or redeems them directly from the issuer for the fiat backing them.

How does DAI work?
A user deposits on-chain collateral to a smart contract address (Maker Vault) that mints the DAI stablecoin. The currently supported collateral against DAI can be found here.

Vaults are over-collateralised and have a liquidation ratio that Vault owners need to maintain in order to avoid being liquidated.

In order to unlock the collateral, the user sends back DAI to the smart contract to burn them, which results in the reimbursement of the collateral.

In a highly volatile market, a situation could arise where the collateral may no longer cover the debt. In that instance, “Keepers” will bid in DAI, via a Dutch auction, to buy the collateral from the liquidated vault. This DAI is then utilised to pay back the vault’s debt, and the liquidation fee. The remaining collateral is returned to the vault owner.

If the auction fails to cover the debt, a liquidity pool containing the fees denominated in DAI and paid on collateral withdrawals is added to the proceeds from the auction.

As a last line of defence, Debt Auctions, a process for minting and auctioning MKR tokens for DAI, recapitalises the pool and repays the outstanding debt.

Stablecoins in the Market
At inception, stablecoins were mainly used as a safe hedge against market volatility and as a convenient on-chain means to trade cryptocurrencies in and out of fiat without having to go through the slower and more expensive alternative of using an off-chain intermediary like a banking institution.

With the advent of decentralised finance, the use of stablecoins was funneled into a few more channels, such as the growing use of stablecoins in decentralised exchanges and liquidity pools for yield-generating purposes (Yield Farming).

As of the publishing date of this article, out of the 200 stablecoins (released or under development), the total MC of the top 124 stablecoins is over $150 Billion, that’s roughly 11% of the total market cap of all crypto assets in the market today, which stands around $1.09T.

Source: CoinGecko.com

USDT, USDC and DAI, account for around 85.69% of the total market cap, with each stablecoin market dominance share being:

USDT 44.14%, USDC 36.9%, and DAI 4.64%.

Source: CoinGecko.com

As of the date of publishing of this article, the average daily trading volume of stablecoins is $50B of the overall crypto daily volume of $101,267,141,062 with USDT having roughly 10 times the volume of its closest competitor USDC.

Source: CoinGecko.com

USDT/BTC and USDT/ETH pairs account for 40% to 50% of the trading pairs involving the 2 top-ranked cryptocurrencies. Besides USDT in bottom yellow, the below chart shows the % of the volume of trades involving a BTC and ETH pair with to the below assets:
a) Other stablecoins: USDC, DAI, and 15 other top stablecoins.
b) Other crypto-assets: Around 30 top-ranked Crypto.
c) Other currencies: 18 most traded national currencies like USD, EUR, JPY, GBP etc.

Source: CryptoCompare.com

The chart below titled “Share of trade volume by pair denomination” clearly shows how USDT is the main trading pair across crypto exchanges as of June 2022, with roughly 60% of the volume. Exchanges included in the calculation: Binance, Poloniex, Bitfinex, Huobi, OKEx, Bittrex, Coinbase, Kraken, and Bitstamp.

Source: theblock.co

Despite USDT’s clear edge over other stablecoins, one recent metric to observe is the market cap of Tether vs USDC, which shows an interesting pattern after the 9th of May, the date the algorithmic stablecoin TerraUSD (UST) crashed.

Source: CoinGecko.com

Since then, the charts show a decline in USDT’s market dominance from 51.87% to 44.14% and a MC dropping from $83B to $66B, whereas USDC’s dominance rose from 30.17% to 36.91% and its MC grew from $48B to $54B, which seems to suggest a fear in the market from a similar scenario happening to USDT (Due to Past allegations accusing Tether of insolvency), and users preferring instead to switch to USDC in what could be perceived as a more secure fiat-backed stablecoin alternative. It is estimated that around $10B of USDT redemptions came in, of which $5B was “USDT de-risking” where market makers swapped USDT for USDC.

Source: CoinGecko.com

A closer look at the 3 main decentralised exchanges on Ethereum, we notice that stablecoins account for roughly 45% of the total crypto liquidity, equally divided between fiat-backed stablecoins such as USDT and USDC (Blue) and crypto-backed stablecoins (Yellow), which seems to suggest that on-chain crypto-backed stablecoins like DAI are preferred over USDC and USDT for DeFi applications for lending/borrowing purposes and other yield farming opportunities.

Source: CryptoCompare.com

The Path to Ubiquity
Despite the quest for ubiquity, the reality is stablecoins are still pending mass adoption.

Below are a few roadblocks preventing stablecoins from becoming the main means used in merchant payments, cross-border trades, global remittances, and other related money services.

a) Regulation and Integration
Payment services providers are often unable to provide international services (often due to regulatory restrictions) and remain constrained within their specific national jurisdictions. As a result, the integration of stablecoins at global (offline and online) merchants’ points of sales is still largely unavailable.

A recent partnership between Circle and Worldpay from FIS (One of hashport 9 validators) aims to change that status quo.

On April 6th 2022, Worldpay business, serving over a million merchants, announced they will be the first global merchant acquirer to provide merchants with the ability to receive settlements in USDC.

Businesses will no longer be constrained by payment service providers offering only fiat integration but will also be able to leverage blockchain and distributed ledger technology to directly receive, hold, and transfer stablecoins in a fast and efficient manner.

Source: https://youtu.be/RtBrQ1iaHhs

b) Performance and Scalability
Not all blockchains are created equal. Scalability, security and finality of transactions are all factors taken into consideration by traditional businesses when comparing distributed ledger technology against their traditional payment networks.

In most blockchains, the transaction time is not near-instant, real-time or even final, as required at the physical PoS or in e-commerce for instance.

On the other hand, stablecoins transfers on Hedera have real-time settlement and 3 seconds deterministic finality, and with 10,000TPS + throughput, stablecoin payments on Hedera can easily rival networks like Visa.

Dapps currently using stablecoins (USDC) for payments and micropayments on Hedera are:

Calaxy, Dropp, TOKO, and TaskBar. With the advent of DeFi and AMMs like SaucerSwap, stablecoins liquidity pools are to be expected.

The farms announced so far are:


Source: https://youtu.be/AO7Hn8dXamY

3) Fees and Cost
Congested networks bloat the price of transaction fees and make it economically infeasible to transact in a fiat-backed stablecoin.

As shown in this study titled “Stablecoins: Survivorship, Transactions Costs and Exchange Microstructure”, the total fees from 2022Q1 for the top ten stablecoins minted on Ethereum are $336.80 million.

USDC = $148 million in fees (44.0%)
USDT = $158 million (43.9%)
DAI = $30 million (8.9%).

Median fee for USDT = $13.03
Median fee for USDC = $18.84
Median fee for DAI = $19.80

Ethereum gas prices have risen, so have the median fees for stablecoins over the last 2 years.

Median fee for USDT rose over 12,500%
Median fee for USDC rose over 19,000%
Median fee for DAI rose over 11,0000%

Compare the above with USDT, USDC, and DAI on Hedera. The transaction fees are always predictable and can be calculated in advance, with a fixed value for a transfer pegged to $0.0001 instead of the platform’s fluctuating token price, and regardless of the amount of stablecoins being transferred.

It is worth mentioning as well the PoC that was conducted by Shinhan Bank, South Korea and Standard Bank, South Africa, which leveraged two national stablecoins, minted on Hedera Hashgraph, for international remittances, costing less than $0.10 per transaction.

Source: https://youtu.be/BQJ9aVwB3N4

About hashport
hashport is the enterprise-grade public utility that facilitates the movement of digital assets between distributed networks, extending their functionality in a quick, secure, and cost-effective way. In order to remain platform-neutral, hashport functions without the use of a proprietary token. The network is built on a robust and performant architecture, secured and operated by a group of industry-leading validator partners from around the world. hashport has passed a rigorous security audit and follows industry best practices; regularly performing comprehensive network tests to ensure the integrity of the network.

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