Non-USD Stablecoins Struggle with Liquidity and Market Adoption
Stablecoins are becoming integral to the cryptocurrency market, surpassing $235 billion in market capitalization. Currently, USD-backed stablecoins, specifically USDT and USDC, dominate with about 90% of the market share.
The challenges faced by non-USD stablecoins, such as EUR-backed options, include:
- Lack of deep liquidity
- Insufficient trading pairs and integrations
- Low financial incentives for market makers
Regulatory frameworks like the EU's MiCA may improve the attractiveness of non-USD stablecoins but do not address liquidity directly. The liquidity gap is evident, with USDT and USDC having market caps of $141 billion and $56 billion respectively, while most euro-based stablecoins struggle to exceed $100 million.
To enhance liquidity for non-USD stablecoins, potential solutions include:
- Developing effective liquidity algorithms
- Creating deep liquidity pools between USD and non-USD stablecoins
By aligning financial incentives for liquidity providers, non-USD stablecoins could gain traction in specific applications such as cross-border remittances, on-chain forex trading, and decentralized lending. Establishing robust infrastructure is essential for achieving sustainable liquidity in the long term.