Fitch: Stablecoin Take More Conservative Stance Despite Rapid Growth

Global stablecoins pulled off the rare combination of increased reserve portfolio conservatism and rapid growth in 2021, with increased aggregate allocations to cash and US Treasury securities and a full-year growth rate of around 470%, Fitch Ratings says. The ten largest stablecoins’ aggregate market capitalisation was USD160 billion at end-2021 (end-2020: USD28 billion).

Stablecoin growth has continued in 2022. Their total market capitalisation of USD187 billion as of 18 March 2022 represented an increase of 15% since the beginning of the year. However, Tether remains the largest stablecoin by market capitalisation, reaching USD78 billion by end-2021, followed by USDCoin at USD42 billion.

Market structure changes, combined with changes to the reserve portfolio allocations of the largest stablecoins, resulted in meaningful improvement in stablecoins’ aggregate risk profile in 2021. Tether has the highest risk appetite, and its market share fell to around 49% of total stablecoin market capitalisation at end-2021 (January 2021: 76%).

Meanwhile, USDCoin’s share increased to 29% from 14% over the same time period. USDCoin holds only cash and US Treasuries in its reserve portfolio, while Tether’s risk and asset type allocation is broader. However, Tether also increased its allocation to higher credit quality securities in 2021. Together, these resulted in a lower overall risk profile in stablecoin reserve portfolio allocations – at least for those stablecoins that publicly disclose reserve portfolio holdings.

Increased conservatism in the stablecoin reserve portfolio composition has coincided with increased regulatory scrutiny and broader usage for stablecoins. Initially primarily an entry route for cryptocurrency purchases, storing proceeds from cryptocurrency trades, and for access to the decentralised finance ecosystem, stablecoins are now used more widely for payments.

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