2019 STATE OF STABLECOINS2FORWARDWe are pleased to present the 2019 State of Stablecoins report, which builds on our first empirical stablecoin study published in September 2018.Stablecoins, as the name suggests, are cryptocurrencies that are designed to minimize price volatility. This minimization of exchange rate volatility most commonly against the US dollar places stablecoins in stark contrast with more volatile cryptoassets like bitcoin, which lack any inbuilt price stability mechanism. Significant volatility is often cited as one of the main reasons why many institutions and individuals have remained on the cryptocurrency sidelines to date, and stablecoins have been developed to address this issue. Today, stablecoins like Tether are most commonly used by cryptoasset traders to address market volatility. However, they also open up a number of other use cases where a volatile cryptocurrency may be less desirable e.g., smart insurance. Stablecoins can serve as alternative stores of value or unit of accounts – use cases that globally amount to tens of trillions of dollars in value.The report findings are based on the analysis of a data set comprised of 54 individual stablecoins. The total number of active projects makes stablecoins one of the largest cryptoasset categories, and as we show in the report stablecoins are also one of the top ranked cryptoasset categories across a number of other key metrics e.g., cryptoasset market value share, venture funding. The level of interest and resources devoted to stablecoins is striking and indicates that stablecoins are viewed as a very important part of the digital assets ecosystem. Indeed, stablecoins are often thought of as a foundational or infrastructure layer, one that could significantly expand the cryptoasset userbase from our current estimate of approximately 20-30 million individuals. In other words, stablecoins could help create a tipping point for much broader cryptoasset adoption. What’s new in the 2019 report This report significantly expands on our earlier research study with new data and analysis to highlight the rapidly growing world of stablecoins. Changes from the 2018 report include Approximately double the data, refreshed to reflect big changes in the space in the last six months New research primers on three leading stablecoins Paxos Standard, Stasis and Reserve A new section comparing three leading stablecoins Paxos Standard, USD Coin and Gemini Dollar Expanded data profiles on 34 stablecoins, including many new stablecoins Overview of how to gain investment exposure to stablecoinsThis report represents the next major publicly available research output from the Blockchain research team. You can freely download our other research from our website https// We are looking forward to continuing and expanding our research into other digital assets and decentralized technologies, and we welcome your feedback on both this report and future research topics. Please contact us by email at . The Blockchain Team3REPORT DATA the remaining 28 stablecoins 52 in the pre-launch phase are mostly expecting to launch in 2019 Timing while a number of stablecoin projects that committed to launching in 2018 achieved this goal, a number of high-profile planned 2018 launches failed to materialize e.g., Saga, Terra, Sweetbridge, etc. Stability live stablecoins have mostly succeeded to date in achieving price stability, with asset-backed coins e.g., Tether generally delivering on their stability promise and outpering algorithmic coins e.g., NuBitsat Stablecoins can be broadly divided into two main stability mechanism categories algorithmic and asset-backed, with 81 of our total sample asset-backed up slightly from 77 in 2018 Of the asset-backed stablecoins, a higher percentage 62, up from 54 in 2018 utilize on-chain collateral i.e., cryptoassets like ether ETH versus off-chain collateral 38 i.e., US dollars held in escrow The US dollar is the most common stability benchmark or ‘peg’ and is utilized by 65 of stablecoins; other benchmarks include other fiat currencies e.g., euro, yen, commodities e.g., gold, and inflation e.g., G10 average country inflation Over half of all stablecoins offer some type of ‘upside participation’ 60, up from 51 in 2018 in the of holding another token with some rights over the stablecoin system e.g., governance token, or a ‘dividend’ or incentive mechanism built into the design of the stablecoin system e.g., ‘seigniorage shares’, sharing transaction fees, etc. Adoption Stablecoins are already an important part of the digital assets ecosystem Tether USDT is the second most actively traded cryptocurrency at 75 of BTC daily trading volume in 2019 up from 57 in 2018 In 2019 Tether entered for the first time the top-5 cryptoasset rankings by market value Stablecoins are listed on over 60 different exchanges at present, with Tether featuring the greatest number of total individual exchange listings at least 65, up 41 from 46 listings in Sept. 2018 Stablecoins have continued gaining listings on major exchanges, with 15 stablecoins featuring on one or more Tier-1 exchanges almost double from eight in Sept. 2018; 58 of live coins now have at least one Tier-1 exchange listing up from 42 in 2018 Use of stabelcoins outside of exchange trading and store of value have failed to materiale in any material fashion to date Emerging markets are being targeted by many stablecoin projects for additional use cases, such as remittances and merchant payments7Competition Stablecoin ccompetition heated up for the first time in Q4 2018 with Tether’s market value share dropping from 93 in Sept. 2018 to 69 today Tether has recoved some from its rocky Q4, with its market value today up 23 from its early Nov. 2018 low of 1.7b Since Sept. 2018, both USD Coin and Paxos Standard have enjoyed outsize success, wich the er knocking TrueUSD from the 2 position in terms of market value, and Paxos Standard leaping to 2 in daily trading volume Even with the success of the so-called ‘better Tethers’ at gaining market value share and listings on major exchanges, Tether continues to dominate stablecoin trading volume with approximately 96 of total stablecoin daily trading volume, down only slightly from Sept. 2018 98Technology and Licensing None of the Tier-1 wallets have made any extra effort to support stablecoins to date, creating incentives for stablecoins to run on Ethereum and piggyback on broadening ERC20 token support While Ethereum is by far the most widely used technology plat for stablecoins, only 50 of all stablecoins are building exclusively on top of Ethereum down from 60 in 2018 Other technology plats chosen for use by at least two stablecoins include Bitcoin and Stellar Over two-thirds of project teams 67 have made their stablecoin code e.g., smart contract open-source for audit inspection Little clarity exists around code licensing, with very few projects disclosing or having made final decisions about how their code can be used or licensed by third-parties A growing number of fiat-backed stablecoins feature a centralized ‘freeze function’ in their smart contracts that enable the issuer or law enforcement to freeze or zero out individual stablecoin balances Funding, Legal, and Team 250m in venture funding has been raised by all stablecoin project teams to date, down substantially due to the shuttering of Basis from 350m in 2018 Algorithmic stablecoins have now raised substantially less funding at 41m or 16 of the total down from 174m, or 50 in 2018 than traditional asset-backed stablecoins 177m, 71; crypto-collateralized stablecoins continue to bring up the rear with 32m or 13 of total funding raised, up from 9 in 2018 Stablecoins are legally domiciled in a wide variety of legal jurisdictions, with the US 8 and Switzerland 6 leading While the vast majority of stablecoins 73 are structured as for-profit, the number operating not-for-profit structures has increased significantly from 15 in 2018 to 27 today. The leading home for stablecoin teams is the US 17, with Europe 13 the second most popular location8VIEWPOINT SUMMARYShort-Medium Term While there is a great deal of excitement surrounding stablecoins, the technology and plats on which they operate are still nascent; it is unlikely the perfect stablecoin design exists today, and further experimentation/innovation is expected As we correctly forecasted in our last report, some of the enthusiasm for algorithmic stablecoins has at least temporarily dampened due to the exit of Basis and growing concerns over whether some stablecoins can successfully navigate legal uncertainty, securities laws, and technical and liquidity challenges Due to the aforementioned design uncertainty as well as regional factors e.g., local regulations, we continue to believe that space exists for approximately 5-8 significant stablecoins in the short to medium-term; our view here received some validation in Q4 2018 with the reduced dominance of Tether and the rising use of Paxos Standard, USD Coin, and other top-100 market value stablecoins Stablecoins continue to be more complementary than competitive with other cryptocurrencies like bitcoin or ether, with many stablecoins relying on the security, compatibility and infrastructure provided by such cryptocurrencies Stablecoins will continue to see an increase in listings on more cryptoasset exchanges, and these listings will be motivated for reasons beyond simply offering traders options to reduce exposure to market volatility e.g., algorithmic stablecoins may prove popular to list as they could attract ‘Soros-attack’ trading and significant trading volume aimed at breaking the automated stability peg Key near-term regulatory issues include whether stablecoins or aspects of stablecoin systems are in compliance with securities and money service laws in some jurisdictions Longer Term Overall, stablecoins are best viewed as a of infrastructure or foundational layer for cryptoassets that will generate immense value for the digital assets ecosystem A stablecoin could help create a tipping point for much broader cryptoasset adoption by successfully addressing volatility, which is often cited as a key reason why many institutions and individuals have remained on the digital assets sidelines to date Many asset-backed stablecoins will attempt to transition to a more algorithmic design Due to competition and other factors, it is unclear how much direct, long-term financial profits stablecoins will generate for the entrpreneurs and investors behimd them; greater long-term value may be derived from stablecoin-powered products and services e.g., smart insurance Some stablecoins may be viewed as posing greater direct competition to fiat currencies than more volatile cryptoassets like bitcoin; if a stablecoin were to become widely used as a means of payment it may spark a competitive response or regulatory backlash from central banks, which in many jurisdictions have largely remained on the sidelines of cryptocurrency regulation to date Rising use of stablecoins may weigh on the prices for some cryptocurrencies, such as bitcoin, that will face greater competition for certain medium of exchange MoE and store of value SoV use cases9INVESTMENT SUMMARYGaining investment exposure to growing stablecoin use and adoptionWe expect the range of options for gaining direct investment exposure to growing stablecoin use will increase as more algorithmic and cryptoasset-backed stablecoin systems go live in the coming months. However, today the number of options for gaining direct investment exposure to stablecoins, particularly for the largest live stablecoins, are extremely limited. Amongst the largest live stablecoins, the Dai stablecoin system is currently the only one that by design has a second token, the MakerDAO MKR governance token, which may appreciate in value in response to growing use of its associated stablecoin, Dai DAI. Please see our Dai primer later in this report for more details.A significant number pre-launch stablecoins, as we show in the Funding section of this report, have received investments from venture and crypto-focused funds. However, these funds are generally only accessible by high net worth individual qualified investors. Some pre-launch stablecoin systems also conducted initial coin offerings ICOs, and some of these did provide broader access to early stage stablecoin projects. While secondary markets for ICO tokens do exist, considerable legal and regulatory uncertainty continues hang over some ICOs in many jurisdictions.Indirect investment exposureThe lack of ‘pure play’ stablecoin investments has led to a search for indirect means to gain investment exposure, and some assets and plats that may materially benefit from rising use of stablecoins include exchanges on which growing stablecoin trading volumes could drive increased token appreciation or more revenue e.g., decentralized exchanges DEXs, centralized exchangesgrowing use of dApps that will integrate stablecoins publicly traded companies that have issued or announced an intention to issue stablecoins e.g., JP Morgan Chase, perhaps Utility Settlement Coin members technology plats on which stablecoins run and function total market value of cryptoassetsSome follow-up points on two indirect investment areasTechnology plats on which stablecoins run and function50 of stablecoins currently run on Ethereum ETH and growing use of Ethereum-based stablecoins should increase demand and use of ETH. Indeed, nearly 2 of all ETH in existence is currently ‘locked-up’ as Dai stablecoin backing collateral, thereby reducing the available supply of ETH for other use cases. However, it is important to note that we have observed in the last five months a material decline in the percentage of stablecoin projects running exclusively on Ethereum. This decline is likely driven in part by concerns over Ethereum’s relatively high transaction fees and scalability concerns limited capacity. Other competing ‘Ethereum killer’ smart contract plats have also attracted significant funding and are deploying some of this capital to attract leading applications to build on their plat. While the barriers to transitioning a stablecoin from a technology plat like Ethereum to a competing smart-contract plat are not insignificant, they are by no means insurmountable.10Total market value of cryptoassetsThere are a growing number of general cryptoasset investment index products, such as the Bitwise 10 Crypto Index BIT10, which offers exposure to approximately 80 of the total market value of all cryptoassets. In addition, Bitcoin BTC has historically responded positive