Ethereum price is 34% down from its ATH in November 2021
Uniswap V3 has hit an all-time high of $4.5 billion in total value locked (TVL) despite the token price of ETH being 34% down from its all-time high in November 2021. Uniswap reached the new all-time high amidst a currently stagnant market shows the finance platform’s diversity and the importance of stablecoins in DeFi.
Uniswap V3 managed to reach a record of total value locked while the price of the blockchain native ETH token didn’t skyrocket. Normally TVL is strongly correlated with booming token price, but that’s clearly not the case here.
Looking at the top ten token assets making up the majority of total value locked in Uniswap today, we see seven dollar-backed stablecoins in the list. These account for around $1.9 billion of the total $4.5 billion in value. USDC is the apparent dominant force, holding over $1.1 billion. The other half of the value locked is mostly made up of ETH and wBTC, a wrapped version of bitcoin.
As mentioned, when token prices drop, the dollar figure for the total amount of tokens held in Uniswap will drop. The high level of stablecoin investment in Uniswap is how the platform reaches new ATH’s amidst token price drops. Due to the fact these stablecoins are pegged to the dollar, they don’t fluctuate.
How are investors using stablecoins?
Uniswaps’ core functionality relies on users providing liquidity to pools to enable token swaps. In a decentralized platform, liquidity must come from its community, unlike a traditional bank which can borrow from central reserves and extend fees to users. On Uniswap, a user might add an equal amount of ETH and USDC to a pool to receive rewards and accrue interest on their assets. This pool is then utilized by traders that wish to make token swaps in ETH or USDC.
A look at the top ten pools on Uniswap reveals much more detail about what’s happening on the platform. Additionally, the pools show where the majority of value locked is on Uniswap right now and in which tokens. Straight away, we see that the two biggest pools are USDC and ETH, which only mirrors the most significant assets locked in Uniswap, so no surprises there.
Interestingly, four of the top ten pools involve only stablecoins, and four involve stablecoins on one side of the liquidity pair.
The growing popularity of decentralized finance in 2022 means that traders are increasingly looking for ways to move in and out of trading positions with as little price impact as possible. Stablecoins can offer this and let traders stay within specific dapp ecosystems to conduct business. Not to mention the rewards and APY on offer for those willing to provide liquidity.
Stability is key
The total stablecoin supply is currently $177 billion, equating to around 10% of the entire cryptocurrency market capitalization. Tether commands about 45% of that total, whereas USDC now holds 29%.
As the multi-chain paradigm continued throughout 2021, a slew of new blockchains, dapps, and decentralized exchanges arrived on the scene. Some of these platforms have launched their stablecoins to aid traders on their specific networks. Magic Internet Money introduced its MIM token, while the Celo dollar is also gaining traction and helping grow the network’s TVL significantly. Additionally, stablecoin projects are now looking outside US dollar pegs to offer traders their native currency, for example, Euro Tether (EURT).
The above does not constitute investment advice. The information given here is purely for informational purposes only. Please exercise due diligence and do your research. The writer holds ETH, BTC, AGIX, HEX, LINK, GRT, CRO, OMI, IMMUTABLE X, GALA, AVASTR, GMEE, CUBE, RADAR, FLOW, FTM, BNB, SPS, WRLD, ATOM, and ADA.