Key Insights:
The stablecoin FDUSD has climbed up to become the 4th largest stablecoin by market cap. The growth in the stable coin was phenomenal as it grew from $100 million in June 2023 to over $2.6 billion in January 2024. The growth was more than 26 times within a span of 6-odd months.
In this article we will decode what led to the high growth in the FDUSD stable coin which other stable coin peers like PayPal's PYUSD failed to imitate.
The FDUSD stablecoin was issued by the First Digital Labs in June 2023. It initially debuted with a $100 million market cap that was way below its peers like USDT, USDC or for the matter even much below TUSD.
#NOTE: TUSD recently lost peg and at the time of press traded below $1.
However, within a period of 6 months, it rose 2650% or 26x, climbing up to the fourth position among stablecoins by market cap.
The meteoric rise of the stablecoin could be attributed to several factors. Some of which are:
Being a very late entrant in the space, it was not much difficult task for the stablecoins maker First Digital Labs to build a system from scratch which was compliant with all the rules and regulations of its home country (here the USA).
Further, they built a reserve system that was verifiable and also issued monthly reports to show their reserve status. This principle of full transparency was not initially adopted by stablecoin issuers like Circle, Binance, Paxos or Tether, which always used to put them at loggerheads with the US SEC. These was primarily because of a lack of clear regulations.
By the time First Digital Labs came up with its stablecoin, the regulations were more clear than ever helping it to issue a stablecoin and comply with all rules in no time.
Within a month of launch, the stablecoin was quickly listed on Binance by July 2023. Being listed on the largest crypto exchange had its own perks in terms of a massive user base combined with ease of swapping with the largest variety of cryptocurrencies.
BUSD had earlier run into several legal issues with the SEC. The main issuer of the BUSD stablecoin, Paxos was ordered to shut down its minting in February 2023 by the New York Department of Financial Services.
On August 31, 2023, Binance announced that BUSD would be eventually shut down by December 15, 2023 and users would be able to redeem their BUSD until February 2024.
The migrations from BUSD and the lack of a clear alternative of Tether's USDT gave rose to FDUSD. This was also aided by the Silicon Valley Bank collapse. The bank held at least $3 billion worth of reserves for the stablecoin USDC.
#NOTE: It has been falsely reported that the wide range of blockchains aided to the rise of USDC. You can still check that the stablecoin is only available on Ethereum and BNB Chain. Clearly, other peers of FDUSD such as TrueUSD are available on more blockchains(Ethereum, BNB, Avalanche, Tron, Arbitrum). Yet, their market cap is below FDUSD's.
Both PYUSD and FDUSD were late entrants to the stablecoin market and both of them entered in similar conditions.
Yet, PayPal's PYUSD failed to grow above FDUSD was because the stablecoin had a very limited access for people outside the USA.
A buyer could access the stablecoin through PayPal's own platform which was only available to users within the United States as of now. Though the stablecoin is available on Coinbase, yet it is unavailable for buyers in Binance and several other exchanges.
Finally, PYUSD was marked with controversy as soon as it was launched because of PayPal's ability to freeze and wipe wallet addresses with PYUSD. Though this practice is also used by other stablecoin issuers, yet PayPal was unfortunate to get highlighted first.
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