Every week, IntoTheBlock brings you on-chain analysis of top news stories in the crypto space. Leveraging blockchain’s public nature, IntoTheBlock’s machine learning algorithms extract key data that provide a deeper dive into the major developments in the industry.
This week we cover the recent regulatory approval of stablecoins in the U.S. and its implications. As well, we take a look at some fascinating insights that highlight the massive impact of Uniswap’s UNI token distribution.
Stablecoins Receive Major Stamp of Approval
Stablecoins’ role within the crypto space has become increasingly important. While they have had their controversies, they serve the need of transferring value on-chain without being prone to the same volatility of most crypto-assets.
As covered in Decrypt, the Office of Comptroller of the Currency (OCC) issued a report in which it states that they will allow American banks to hold reserves for stablecoins. While this may not sound like a breakthrough at first, it does clarify the regulatory framework regarding stablecoins in the U.S.. This is the second positive development coming from the major regulatory entity, as earlier in the summer they allowed banks to legally offer crypto custody services.
This regulatory clarification and approval incentivizes more traditional financial institutions to work with stablecoin projects. It may not happen overnight, but at some point big American banks are likely to start holding reserves backing stablecoins. With demand for stablecoins steadily growing, it would not be surprising if this happens within a year or two.
Analyzing on-chain insights, we can observe just how significant this growth has been, and have a better idea of where they may be heading in light of the recent regulatory stamp of approval. Let’s start by looking at the daily transactions volume that Tether — the largest stablecoin — processes:
In the past two years, on-chain volume recorded for Tether transactions on Ethereum has grown from $500,000 per day to over $3.5 billion per day, a 7000x increase. This has led the stablecoin to consolidate itself as the third-largest cryptocurrency by market, and to surpass the daily volumes transacted in Bitcoin and PayPal. With demand for Tether and stablecoin transactions growing at such rates, it is very likely that banks will want to start holding their collateral to benefit from this trend.
By tracking stablecoin deposits and withdrawals to and from exchanges, we can have a better idea what type of activity they are being used for. IntoTheBlock’s Net Flows indicator measures money flowing into exchanges minus the money flowing out of them to calculate the net amount entering/leaving exchanges. In the graph below, we can see that Net Flows have been consistently negative for Tether.
This points to Tether outflows from exchanges being greater than the Tether being deposited into exchanges. As a matter of fact, large centralized exchanges have seen a net outflow of $6.8 billion in Tether so far in 2020. This suggests that stablecoins are being used mainly as a transfer of value, rather than to trade crypto with them. As well, it is likely that a significant portion of this has been allocated into DeFi protocols where users are able to passively earn high yields.
With demand for Tether skyrocketing, public perception for it has improved too. By looking at IntoTheBlock’s Twitter sentiment, we can see that negative sentiment towards Tether has eased off in 2020.
In the summer of 2019, tweets that were classified as having negative sentiment consisted of a third of the total. This number has since dropped to around 5%. At the same time, the total number of mentions for Tether and positive sentiment have increased. This highlights how public perception of the largest stablecoin has changed as it’s being used more.
With the recent FinCEN files scandal disclosing $2 trillion worth of dirty money being funneled by banks, it is reasonable to believe that more transparent alternatives such as stablecoins will keep getting traction. Up until this point, most stablecoins have likely been used within crypto. The OCC’s approval for banks to hold stablecoin reserves could be a first step before more traditional institutions start using stablecoins.
Key Insights Behind UNI’s Distribution
Uniswap users received a pleasant surprise last Thursday when the popular decentralized exchange (DEX) distributed 15% of their UNI governance tokens to all users that interacted with the protocol prior to September 1. At an initial price of approximately $3, Uniswap airdropped $450 million worth of UNI tokens.
While airdrops in crypto are nothing new, this has thus far been the airdrop where the largest dollar amount has been distributed. Another key difference versus airdrops that took place in 2017-18 is that UNI was distributed to existing users and supporters of Uniswap, whereas most airdrops simply reward holders of another token or users of a specific wallet.
The impact of UNI release had a strong impact in the Ethereum blockchain. UNI’s distribution took Ethereum fees to a new level, approaching $1 million per hour shortly after users were able to claim their free governance tokens.
Within five hours, hourly fees nearly went 10x up, from just over $100,000 to over $900,000. This is the highest Ethereum fees have been on a per hour basis all year.
The spike in fees is due to high demand for limited Ethereum blockspace. As a result, gas fees stood between 500 to 700 Gwei for several hours, also one of the highest levels seen all year.
Despite the high fees, Uniswap users still rushed to claim their UNI tokens. This is likely the main reason why the number of ETH transactions surpassed 1.3 million the day UNI was released.
The UNI distribution marked a new yearly high in terms of Ethereum transactions, and the second highest level seen all-time. Now let’s look into activity within the UNI token.
By looking at the number of addresses holding UNI, we observe that it instantly attained widespread distribution. With over 80,000 holders within 48 hours, UNI became the second most held DeFi token only behind LEND (excluding stablecoins and oracles).
Based on Uniswap’s official announcement, there were just over 250,000 user addresses eligible to claim their free UNI. Although some of these addresses have yet to claim their UNI, it appears that most simply sold. By looking at zero balance addresses — addresses that transferred out all of their tokens on a given day — we can confirm that most UNI claimers either sold or transferred all of their stake immediately.
With $450 million worth of tokens freely distributed to previous users, it may come as no surprise that UNI sparked high Ethereum fees and transaction activity. Within a week of its inception, UNI has already amassed strong transaction activity and reached the second highest holder base out of DeFi tokens despite most users selling their tokens. Ultimately, Uniswap’s UNI release has been one of the most impactful events to occur in Ethereum in 2020.
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