Stablecoin Foundations: Evaluating Market Classifications, Contract Design, and Transaction Costs

This report has been co-authored by Vincenzo Furcillo, Senior Research Associate at BCAS, and Tom Berkman, Technical Analyst at BCAS.

Executive Summary

This comprehensive report delves into the $126 billion-dollar stablecoin market by examining the 50 largest stablecoins by market capitalisation. A taxonomy is presented to classify stablecoins based on pivotal attributes such as collateral type, peg, stabilisation mechanisms and governance structure. This classification reveals the multifaceted nature of stablecoins and highlights the many different types and designs of stablecoins prevalent in the market today.

An in-depth analysis is conducted on a sample of 10 stablecoins by examining their smart contracts and focusing on contractual arrangements, ownership structures, and transaction checks. Findings from this examination suggest a prevalent trend: centralised stablecoins demonstrate a propensity towards employing proxy contracts and enacting more stringent transaction checks compared to their decentralised counterparts.

Moreover, the report quantitatively assesses the financial repercussions stemming from the design choices of stablecoins. It reveals significant expenditures associated with transaction checks, amounting to approximately $100 million for USDT and $87 million for USDC, outpacing other stablecoins in the sample. These figures are attributed to the high transaction volumes these stablecoins experience. By analysing historical transaction data, we calculate the average transaction cost and the corresponding expenses related to transaction checks for each stablecoin.

In conclusion, this report presents a detailed examination of the stablecoin landscape, shedding light on the complexity of stablecoin architecture, the economic implications of their utilisation, and the consequent evolution of the stablecoin market over time.