By Michael Egorov, Curve Finance
Stablecoins continue growing into a pillar of both the cryptocurrency world and the global financial system. The market has already surpassed $235 billion, showcasing that people have faith in the future of these assets.
Currently, two USD-backed stablecoins (USDT and USDC) have about 90% of the market. The rest of the top-10, including USDe and PYUSD, are all dollar-denominated. Euro-based stablecoins have little market share by comparison. Why is that? There are many discussions around regulation, interoperability, and integration with TradFi. However, the single most important factor is liquidity. Without deep and sustainable liquidity, no stablecoin can gain mass traction, and no amount of regulatory clarity will change that. Let’s take the Euro as an example. EUR-backed stablecoins have existed for years at this point, yet they remain barely used. Mainly that’s because of liquidity challenges. That’s what ultimately determines whether a stablecoin can become a widely used financial tool. For years now, USD-backed stablecoins like USDT and USDC have been the dominant force in this landscape, acting as the primary source of liquidity in lending pools and trading pairs. USD-backed stablecoins have deep liquidity, high trading volumes, and extensive integration across CeFi/DeFi platforms.
In contrast, euro (and other non-USD) stablecoins suffer from a lack of market mechanisms that could sustain them. There simply aren’t enough trading pairs, users, and financial instruments built around them to create a proper liquidity ecosystem like what the USD stablecoins have.
One of the key reasons for this liquidity gap is that centralized market makers do not see enough financial incentive to provide liquidity for euro stablecoins. It simply isn’t profitable enough for them. So they prioritize other assets, leaving EUR-backed stablecoins on the backfoot.
This isn’t just a matter of preferences — it’s a more fundamental issue that’s economic in nature. If market makers can’t make a decent return on providing liquidity for these assets, they won’t allocate capital towards them. So, how can this be changed? Read the rest of the op-ed here. | 