Newcomer Stablecoin FDUSD is Rising Up to Dominate the Crypto Market

The meteoric ascent of FDUSD, a stablecoin that didn't exist until 2023, has left many in the cryptocurrency community baffled. In just over three months since its inception on Binance, FDUSD has managed to dominate the stablecoin market, making headlines and raising questions about its rapid growth.

FDUSD's Background and Partnerships

To understand this phenomenon, it's important to start with the basics. FDUSD, which stands for "First Digital USD" is a stablecoin, a type of cryptocurrency designed to maintain a stable value by being pegged to a reserve asset, typically a fiat currency like the US dollar. What makes FDUSD intriguing is its timeline. It burst onto the scene on August 1st, 2023, making it a relative newcomer in the world of cryptocurrencies.

One cannot discuss FDUSD without mentioning its close association with Binance, one of the world's largest cryptocurrency exchanges. Binance played a pivotal role in promoting FDUSD, serving as its launchpad. The partnership between FDUSD and Binance, particularly the exchange's offer of 0% fees on the pair, undoubtedly contributed to its rapid growth.

FDUSD's Fundamental Stats

Time to delve into the FDUSD numbers. In its early days, FDUSD had a humble market capitalization of just $20 million and negligible trading volume. However, within a few days of trading on Binance, it ballooned to a $250 million market cap, accompanied by a staggering $50 million in 24-hour trading volume. Such rapid growth is unusual but becomes somewhat understandable given the backing of a major exchange like Binance.

The market capitalization of FDUSD since its launch. Source: CoinGecko

Comparing FDUSD's market cap and trading volume to other stablecoins reveals some astonishing disparities. It outpaced the trading volume of BTCUSDT, one of the most popular and traded spot pairs, by a whopping 65%, despite having only 406 million FDUSD in circulation. To put this into perspective, there are 78 billion USDT in circulation, a staggering 169 times more than FDUSD.

Distribution and Staking of FDUSD

Examining FDUSD's distribution, it becomes evident that almost half of its supply is staked on the launch pool. While these staked tokens can be withdrawn at any time, it's unusual to see such a substantial portion of a stablecoin's supply held in staking, effectively removing it from the open market.

Furthermore, an investigation into FDUSD's distribution outside of Binance reveals that the majority of its supply is firmly in the hands of the exchange itself, raising questions about the decentralization and independence of this stablecoin.

One intriguing aspect of FDUSD's rise is its apparent correlation with increased volatility in bitcoin price. known for its price stability in recent years, bitcoin experienced a significant uptick in volatility coinciding with the surge in FDUSD trading.

Volatility comparisons between BTCUSDT and BTCFDUSD demonstrate that the latter is notably more volatile. Minute-by-minute analysis reveals that the FDUSD pair exhibits greater volatility in both upward and downward price movements.

Binance's Involvement and Market Makers

Binance's offer of 0% maker fees for FDUSD undoubtedly played a role in attracting traders to this pair. However, the presence of market makers, especially Wintermute and other automated trading entities, has been particularly conspicuous. These market makers frequently deposit and withdraw FDUSD from Binance, contributing to liquidity and influencing spreads.

The top ten FDUSD trading pairs. Source: CoinGecko

In the crypto industry, a market maker is a company or individual that provides liquidity to a cryptocurrency market by buying and selling assets at prevailing market prices. The goal is profiting from the bid-ask spread and providing liquidity to the market.

Market makers are known to apply spreads and provide liquidity to stabilize asset prices. However, there have been instances of thinning out order books when larger sell-offs occur, contributing to extreme price swings. Such practices, while not unheard of in traditional financial markets, raise questions about their extent and impact in the cryptocurrency realm.

Understanding the Impact of a Rising Stablecoin

The ascension of FDUSD in the market presents a multi-dimensional impact. Trading dynamics may induce unintended volatility in other coins, potentially leading to short-term price drops or volatility spikes in stablecoins or more volatile assets like bitcoin or ether. This in turn affects the liquidity and stability of other coins, especially competing stablecoins, with a ripple effect that can reverberate throughout the cryptocurrency market, influencing trading strategies, liquidity pools and investor sentiments.

Comparing the rise of FDUSD to other seminal moments in cryptocurrency history, such as the introduction of USDT (Tether) and USDC (USD Coin), offers a fascinating lens. USDT's growth was gradual and supported by consistent proof of reserves, while USDC's launch was met with interest due to its regulated nature and transparency initiatives.

FDUSD's rapid dominance stands out in stark contrast, underscoring its anomalous trajectory and the need to understand the underlying factors propelling it, especially in an already crowded stablecoin market.