The stablecoin wars, a comprehensive recap from 2022 to 2023

The rapidly evolving world of crypto and DeFi can be overwhelming, making it challenging to keep up with the latest developments and significant milestones surrounding popular stablecoins. Here's a curated recap of the pivotal moments in centralized fully reserved stable coins from 2022 to 2023.

  • May 2022: Stablecoins post LUNA/UST collapse
  • September 2022: Binance delist USDC
  • Feb 2023: NYDFS terminates Paxos BUSD
  • March 2023: USDC entangled in US Banking crisis
  • June 2023: Binance launches TUSD and FDUSD
  • July 2023: Multichain bridge hack
  • August 2023: Tether and Binance: A Public Spat
  • September 2023: The TUSD info leak
  • October 2023: BTC “god candle” and FDUSD

Stablecoins Post LUNA/UST Collapse

Post LUNA/UST collapse in May 2022, centralized fully reserved stable coins experienced a resurgence, with the big 3, USDT (Tether_to), USDC (Circle) and BUSD (Binance & Paxos) leading the charge in both marketcap and trading volume. The market perceived USDC to be the more regulated and safer option thus its share of marketcap and trading volume climbed fastest among the three. It reached a peak of 55B in July 2022, only 10B away form the oldest and #1 stable coin, USDT.

Binance delist USDC

The first shot of the 2022-2023 stablecoin war was fired by Binance when they delisted USDC pair on September 29th, 2022 while at the same time incentivizing BUSD with 0% fees on major trading pairs.

This led to a significant decline of USDC marketcap from 55B to 42B

NYDFS terminates Paxos BUSD

USDC issuer, Circle, fought back and filed a complaint to the NYDFS bolstered by an investigation from chain analytics firm, ChainArgos.

This probe unearthed discrepancies: while BUSD on Ethereum was fully backed, its counterpart on the BSC blockchain often fell short of 100% backing. The revelation led the NYDFS to issue a stern directive to Paxos in February 2023: halt the minting of BUSD.

The consequences were swift: a slump in Binance CEX trading volume and a liquidity drought in BSC DeFi, especially as the most liquid pools on Pancakeswap, BSC's top DEX, were denominated in BUSD. Paxos issued a statement that it is sunsetting BUSD but will still process BUSD redemption until February 2024.

USDC entangled in US Banking crisis

A subsequent resurgence of USDC was abruptly halted only a month later in March 2023, due to the US Banking Crisis

in which Silicon Valley Bank (SVB), where a significant portion of USDC reserves were held, became insolvent.

As market participant realized the situation direness, USDC begun to depeg reaching a low of 0.88

Several DeFI protocols that hardcoded USDC price to 1 were promptly exploited resulting in millions of dollars in losses. USDC rebounded the next day from the announcement that the FDICgov will make all SVB depositors whole and the Federal Reserve will buy treasury holdings of troubled banks at par value, a departure from previous public policy.

Though USDC survived, the damage to its reputation remained and it’s marketcap continue to dwindle from this point on with most of it migrating to USDT / Tether. With BUSD on end-of-life cycle and USDC reputation tarnished, USDT / Tether regained dominance in trading volume on most overseas exchange including Binance and also on-chain in many DeFI protocols.

Binance's Attempt with TUSD and FDUSD

Binance tried again with a new stable coin TUSD (TrueUSD), seemingly in partnership with Justin Sun

They promoted TUSD pair with 0% maker and taker fee and also seeded liquidity on BSC Pancakeswap DEX with liquidity pool farms for the TUSD -USDT pair

In June, in addition to its TUSD offering, Binance also launched FDUSD (FirstDigital) with similar marketing as TUSD

Multichain Bridge Hack

One month later in July 2023, MultichainOrg, a popular bridge in DeFI was seized by the Chinese police

and along with it almost the entire bridged USDC and USDT supply in FTM blockchain is gone

This event highlighted the need of a trustless bridge for chains that has no native USDC or USDT support and made axelarcore bridge, a solution endorsed by uniswap and circle, rose in popularity.

Tether and Binance: A Public Spat

In August 2023, jibes were exchanged between Tether and Binance with each implying of the other’s impropriety. During a twitter AMA , Binance CEO’s Changpeng Zhao stated that USDT is a black box without any proper audit.

Why does Changpeng Zhao have stablecoins on the brain?

While Tether’s CTO, Paolo Ardoino accused Binance of intentionally de-pegging USDT

The TUSD Info Leak

TUSD slowy started to gain trading volume until a scandal broke out in September in which a hacker leaked TUSD clients info

In late October, an investigation by the same firm that exposed BUSD inconsistent backing, ChainArgos, revealed that TUSD deployer key was likely compromised and used to create TEURO

This revelation eroded confidence in TUSD and it became slightly off peg at -0.4% on October 24th

BTC's 'God Candle' and FDUSD's Sudden Spike

During the BTC “God Candle” pump of 23-24 October, FDUSD which has been relatively dormant until that time experienced a sudden volume spike that made its volume/marketcap climb to >700% and dominated BTC buying compared to USDT

And this wraps up our recap of stablecoins tumultuous journey over the past two years, you can bet 2024 will be even more dramatic!

3 thoughts on “The stablecoin wars, a comprehensive recap from 2022 to 2023”

  1. Here is a Nitter link for the Twitter thread linked above. Nitter is better for privacy and does not nag you for a login. More information can be found here.

    I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.

Comments are closed.