When I look at the Cardano ecosystem and compare it to other platforms, I have to be happy with the development. Cardano is a young platform so it needs more time to establish itself. But one thing is worrying at first glance. The Cardano ecosystem lacks the standard USD-backed stablecoins USDT and USDC. This may hinder growth. We desperately need a USD-backed stablecoin.
Cardano's position among older projects?
Let's take a look at the stats from Defillama first. The information may not be complete and accurate, but at least it's from one source.
Note that the number of deployed applications and TVL is not the determining factor for the number of users. On Ethereum, you can use 838 apps and TVL is 26.3B USD. The number of active users is roughly 320K. On Cardano, according to Defillama, there are only 21 apps and the TVL is low, only 160M USD, yet the number of daily users is roughly 60K.
Ethereum has 40x more applications and 170x higher TVL, yet the number of users is only 5x higher than Cardano. The high TVL has a simple explanation. Ethereum has a higher market cap and many OGs who are willing to lock ETH in DeFi. It is possible that some institutions use DeFi services (not only on Ethereum) to make a profit. It is logical that time-tested services are used.
DeFi on Cardano has not yet gone through a bull market. Still, Cardano is doing very well compared to the newer projects Solana and Avalanche. Although it has the smallest number of applications and TVLs, the difference in the number of users is not even double.
In terms of the number of users, the Tron and BSC projects lead, surprisingly to some, with 1.9M active users and 1.6M users respectively. It is very interesting that there are only 23 applications deployed on the Tron platform. This is another indication that the number of apps is not crucial when it comes to TVL or the number of users. What is important is that there are several reliable applications on the platform. Let's add that many applications on Ethereum are mere copies of their predecessors. This is also true within EVM-compatible platforms.
On the other hand, the daily DEX volume on Tron is very low, only 4.6M USD, which is a big difference in the context of high TVL. Ethereum has the highest DEX volume at 1.3B USD. DEX volume in the hundreds of millions of USD is on BSC, Arbitrum, and Polygon.
Arbitrum has 53x higher DEX volume than Cardano, and Polygon has 18x higher DEX volume than Cardano. However, the difference in the number of daily users is only 3x and 6x.
Of course, it is important to note that not all active users have used DEX.
From our perspective, the Cardano ecosystem is most lacking in USD-backed stablecoins. In the Ethereum ecosystem, there is almost 70B USD in stablecoins, on Tron it's 43B USD, and on BSC it's 5.3B. Avalanche and Solana have approximately 1.5B USD in stablecoins. In the case of Cardano, it's only 14M.
For many platforms, the value in stablecoins is higher than TVL. The only exceptions are Arbitrum, Optimism, and Cardano. While in the case of the first two, the difference is not even double, in the case of Cardano the difference is almost 12 times.
Stablecoins are an essential part of any DeFi ecosystem. Cardano has an algorithmic over-collateralized stablecoin DJED. Unfortunately, people don't trust projects like this, and that's mainly because of the collapse of Terra Luna. DJED needs to go through a few more stress tests and gain the trust of users. This may take several years. The Cardano ecosystem needs stable coins that people are used to and trust, which are USD-backed ones.
The volume of stablecoins surpasses cryptocurrencies
The daily volume of stablecoins is huge. For Tether USD (USDT) the daily volume is 26B USD and for USD Coin (USDC) 3.5B USD. The algorithmic stablecoin Dai has a volume of under 200M USD. It's safe to say that people use roughly 150x more USDT than DAI judging by the daily volume and trust it 18x more by market capitalization.
Bitcoin's daily volume is 13B USD, and Ethereum's volume is 6B USD. For other projects, it is in the hundreds of millions of USD.
Stablecoins are an extremely important part of the blockchain industry and contribute significantly to daily volume. It is more important for the success of DeFi that DEX volume grows compared to volume on centralized exchanges. DEX volume on Ethererum is 1.3B USD, on other platforms we are in the lower hundreds of millions of USD (BSC, Arbitrum, Polygon) or tens of millions of USD (Cardano, Solana, Avalanche).
Approximately 95% of users hold cryptocurrencies on centralized exchanges, so it is logical that they trade in large volumes compared to DEX volume. I dare say that people will be more willing to use DEXs on Cardano only if there is a USD-backed stablecoin available. At the time of writing, there are only a few days left before tokenized BTC is available on Cardano. I can imagine some people will leave centralized exchanges if they can trade the BTC/USD and ADA/USD pairs on Cardano DEXs.
Let's add that it is already possible to get exposure to the market value of USD, BTC, and other assets thanks to Indigo.
Cardano’s mission can't do without stables backed by fiat currencies
Stablecoins backed by fiat currencies are extremely important to the mission of the Cardano project to become the financial operating system for the entire world, but especially for those who need it most. People in developing countries need stablecoins. I dare say even more than cryptocurrencies.
Let's have a look at the total crypto-asset volume by asset type in US dollars from April 2019 to June 2021. Data were collected by Chainalysis. The volume in ETH makes 40% and 24% for stablecoins. They have gained more share over time compared to BTC with a volume of 24%. DeFi and other crypto assets represent 12%.
Although the data is older, the trend is clear. The importance of stablecoins for sending value is growing significantly and it is possible that it will surpass BTC's position (if it hasn't already). ETH's dominance may be surprising.
The high volatility of cryptocurrencies prevents their direct daily use in developing countries. Stablecoins can protect people's savings and allow them to pay for goods and services without the risk of high inflation (compared to some fiat currencies) and high volatility.
The situation in sub-Saharan Africa is well described by the Chainalysis blog.
Sub-saharan Africa accounts for $100.6 billion in on-chain volume received between July 2021 and June 2022, which represents 2% of global activity, and 16% growth over the year prior. Numbers can be deceiving, as deeper analysis reveals that Africa contains some of the most well-developed cryptocurrency markets of any region, with deep penetration and integration of cryptocurrency into everyday financial activity for many users. It can be seen primarily in Nigeria and Kenya.
Adedeji Owonibi, the founder of Nigeria-based blockchain consultancy and product studio Convexity, told to the interviewer:
“We don’t have big, institutional-level traders in Sub-Saharan Africa. The people driving the market here are retail. Nigeria has a ton of highly educated young graduates with high unemployment rates, and no jobs available — crypto to them is a rescue. It’s a way to feed their family and solve their daily financial needs.”
According to Adedeji, the volatility of the Nigerian naira also drives the need for cryptocurrency in the country, as users believe they can better preserve their savings with stablecoins like Tether.
The importance of stablecoins will grow as they solve several real problems. It's a hedge against the high volatility of cryptocurrencies. It serves as a store of value and a medium of exchange for people in poor regions. Stablecoins can also serve institutions for bank transfers. It is always safer to transfer a stable asset than a volatile one, as the value of volatile cryptocurrencies can change literally within minutes. Bitcoin has an average block time of 10 minutes and a settlement time of approximately one hour. Therefore, it is safer to use SC platforms that have a block time of a few seconds (Cardano 20, Ethereum 12, and Algorand even just 3.3s with instant block finality).
If Cardano is to succeed in Africa and other developing countries, and there is to be more use of DeFi services everywhere in the world, it is imperative to have stablecoins backed by fiat currencies in the Cardano ecosystem.
Emurgo has announced the release of a USD-backed stablecoin USDA for Q1 2023. The project has been delayed. The latest news from Anzen's Official Twitter account is from May. Security audit, stress testing, and additional review appear to be ongoing. No launch date was given.
If you delve more into the trends, you will find that Cardano is doing very well despite the ongoing bear market (or is it over?). I was expecting TVL to start rising in a bull market along with the TVL growth of other platforms. As I said in the article, success is not about TVL but about the number of users. It is also growing. If people want to use Cardano, i.e. DeFi services or stablecoins, they need to have ADA in their own wallet. For people in developing countries, this is a necessity to use their own blockchain wallets since they need to use stablecoins on a daily basis. Hopefully, we will see a USDA or other USD-backed stablecoin soon.