Market Analysis

DeFi users turn to USDC stablecoin to earn high-yield interest — Data shows

Data from on-chain analytics firm, Flipside Crypto, reveals that members of the decentralized finance (DeFi) ecosystem are turning to USD Coin USDC in order to interact with DeFi protocols either by earning high-yield income on lending protocols like Compound and Aave. Users are also providing liquidity to liquidity pools like Uniswap and Curve, the latter of which offers stablecoin to stablecoin trading.

Following the launch of Curve’s governance token, CRV, on August 14, there was a surge in USDC on-chain activity. The launch of the token has also helped Curve earn the third place in terms of value locked, following Aave and Compound, with $1.27 billion locked, according to DeFi Pulse.

Yield Farmers turn to USDC to earn CRV Interest

Yield Farmers turn to USDC to earn CRV Interest. Source: Flipside Crypto

In Curve, liquidity providers receive rewards every time a trade is conducted on the exchange. This is the result of the platform’s fee being evenly split between participants. 

Moreover, these liquidity pools are also supplied to lending protocols like Compound which allow for extra interest to be received alongside any traders being made by the user. 

USDC popularity grows amongst DeFi users

USDC is a USD-backed stablecoin launched by Circle, similar to Tether’s USDT. Although Tether is by far the most popular stablecoin across the board, including on the Curve platform, USDC has been establishing itself as a go-to asset for the Decentralized Finance sector, a major onramp within the ecosystem.

After DAI, USDC is the most lent and borrowed stablecoin on the Compound protocol and it is also the most borrowed stablecoin in Aave. Flipside Crypto has also noted a clear pattern in the flow of newly minted USDC, most of which go through Coinbase and are then sent to the largest DeFi platforms.

USDC net asset flows from August 12th-19th, 2020

USDC net asset flows from August 12th-19th, 2020. Source: Flipside Crypto

While USDC is increasing in popularity it still lags massively behind USDT, whose primary use case is inter-exchange settlements

USDT has a $13.3 billion market capitalization, while USDC is nearly ten times smaller at $1.3 billion. However, it is still the second largest by use and trading volume at the time of writing, having held the second place in trading volume since May 17. USDC has seen more than $90 billion in on-chain transaction volume.

Main USD-Backed Stable Coin Contenders - Market Cap (USD)

Main USD-Backed Stable Coin Contenders – Market Cap (USD). Source: Skew

USDC 2.0 may to boost DeFi activity

Last week the Centre Consortium announced the USDC 2.0 upgrade will allow transaction fees to be presented and paid in USDC. It’s possible that USDC will continue to gain even more traction both in and outside of the DeFi context with the release of its upcoming upgrade. 

While transaction fees will still need to be paid, the upgrade will simplify the experience from the perspective of a regular user, circumventing the complex nature of Ethereum’s gas system and possibly reducing the risk of network congestion and extremely high transaction costs.

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