Introducing Santiment’s Brand Index for Stablecoins
Reflecting on the biggest market trends of 2020, Bitfinex CTO Paolo Ardoino recently posited that large stablecoins have become a “catalyst for mainstream adoption”, and are now primed to penetrate non-crypto markets in the coming years.
The raw numbers seem to back this up. As has been widely discussed last year, the market cap of top stablecoins has visibly mushroomed since the Coronavirus dump, prompted by a ‘perfect storm’ of market conditions and the proliferation of decentralized finance:
Between its launch in early 2015 and March 2020, Tether’s total market cap grew to a commendable $4.6bn. In the last year alone, however, USDT’s market cap exploded from $4.6bn to $43.7bn, marking a +850% increase.
Tether, of course, is far from alone in this market-wide uptrend. The second largest stablecoin, USDC’s market cap grew from $702m to $10.9bn over the last year, while multi collateral DAI’s market cap vaulted from just $79m in March of 2020 to $3.1bn at the time of writing.
In other words, while Bitcoin and DeFi were busy clutching the spotlight, 2020 has marked a watershed moment for stablecoins just as well.
However, although the market has bent over backwards to develop new methods, indicators and tools for valuing BTC and DeFi, stablecoins have largely taken a backseat.
A new ranking system
So how do you compare the growth of different stablecoins in 2021? While market cap remains the go-to metric for gauging stablecoin momentum, there’s no denying that it tells an incomplete story.
Total supply minted is a good benchmark for the adoption rate of different stablecoins, but it fails to report on a number of other, equally valid criteria:
- How many unique addresses interact with stablecoins daily?
- Are stablecoin developers still actively working on the end product, pushing new features, updates and integrations?
- How do different stablecoins compare in terms of market reputation and ‘social dominance’?
These and similar questions are usually crucial when performing due diligence on any volatile cryptocurrency, but they’re nowhere to be found when talking about stablecoins.
Santiment’s Brand Index for Stablecoins
To help eliminate this asymmetry, we are pleased to introduce the Santiment Brand Index - a new umbrella metric comprised of 6 criteria for comparing and evaluating Ethereum-based stablecoins.
In our Brand Index, each stablecoin is assigned an individual rating based on a cluster of financial, on-chain, social and development information. The final rating is determined by a weighted sum of all metric scores, computed for each stablecoin.
The Santiment Brand Index is a weighted result of 6 indicators, taken from a wide range of meaningful datasets. These include:
- 1. Market Cap
While not the end-all metric some like to make it, market capitalization is an important gauge of stablecoin demand and speculative interest over time. Unlike more volatile cryptocurrencies, the stablecoins' market cap primarily depends on their ever-changing token supply.
In order to smooth out market cap fluctuations, the Brand Index considers a stablecoin’s average market capitalization over the last 4 months.
- 2. Daily Active Addresses
Daily active addresses (DAA for short) is an on-chain metric that tracks the amount of unique addresses interacting with (i.e. sending or receiving) a stablecoin each day. While the market cap gives a sense of wholesale demand for stablecoins, DAA allows for a more accurate reading of their adoption over time, as well as the stablecoin’s ‘network effect’.
Same as with market cap, the Brand Index considers the average amount of daily active addresses over the last 4 months.
- 3. Social Volume
Social volume is a custom metric developed by Santiment, and tracks the amount of coin-specific mentions on over 1000 crypto social channels (including Telegram groups, crypto subreddits, Twitter accounts and more).
Social volume is especially useful in comparing the reputation and ‘mindshare’ of different stablecoins within the crypto community, and tracking changes in their social and media presence relative to their competitors. Santiment’s Brand Index considers the coin’s median social volume over the last 4 months.
- 4. Development Activity
Development activity is often an underrated indicator of project success. A developer's time is a relatively expensive resource (especially in crypto), so high development activity demonstrates the project’s month-to-month commitment to creating a working product, continuously polishing and upgrading its features, and staying true to the long-term roadmap.
You can read more about how we calculate each crypto project’s development activity here. Santiment’s Brand Index considers the project’s average development activity over the last 4 months.
- 5. Price outliers
Given the main purpose of stablecoins, a (relatively) high price volatility can have a major impact on their market share and perceived utility.
The Brand Index takes into account the total number of times (as % of all trading history) that the price of each stablecoin changed by more than 2.5% in their lifetime (minus the first 30 days). The scale and frequency of such price outliers helps measure the risks associated with holding a particular stablecoin.
- 6. Coin Velocity
Finally, coin velocity is an on-chain metric that tracks the average number of times that each token changes wallets on a daily basis. Simply put, the higher the velocity, the more that a single coin is used in daily transactions.
Similar to the velocity of money in traditional finance, coin velocity can be useful in measuring the usage rate of different stablecoins, and in particular their prevalence as a medium of exchange. The Brand Index considers each stablecoin’s median velocity over the last 4 months.
For those interested, we will soon be publishing full details on Brand Index’s methodology over on our Academy.
Brand Index: Q1 2021 rankings
We imagine the Stablecoin Brand Index as a quarterly report, which will cover all ERC-20 stablecoins with an average market capitalization of $100,000+ and the average daily trading volume of $10,000+ over the previous 4 months.
As we’ve just ended the first quarter of 2021, below are the top 10 Ethereum-based stablecoins according to our Brand Index:
Perhaps unsurprisingly, Tether takes the top spot on our Brand Index list for Q1 of 2021. While its relative price stability and daily velocity still leave room for improvement, USDT remains by far the most actively used stablecoin in the world, with an average of 90,000 daily active addresses interacting with (sending or receiving) ERC-20 Tether alone.
Compare this to DAI (~7.2k daily addresses) and USDC (~30,000 daily addresses), and it quickly becomes clear there’s much more than market cap that makes Tether the dominant force it remains today.
Furthermore, according to our data, Tether also enjoys the highest amount of social media mentions and - in turn - commands the largest ‘mindshare’ among stablecoins. At the time of writing, the two runner-ups by total crowd engagement include DAI and USDC, respectively.
The second spot according to our Brand Index belongs to Multi Collateral DAI, maintained and regulated by MakerDAO. While DAI’s market cap ($3.19bn) pales in comparison to USDC ($10.9bn), the decentralized stablecoin outperforms in a number of other aspects, including daily coin velocity and development activity.
This is also why it’s not surprising that Maker is commonly featured in our monthly roundups of top 10 crypto projects by development activity.
Rounding up the top 5 stablecoins for Q1 of 2021 according to our Brand Index are Circle's USD Coin, followed by Binance USD and TrustToken's TUSD.
Overall, we believe that the Brand Index rating can provide a more comprehensive overview of the current stablecoin ecosystem, as well as its growth and evolution over time.
As you can see, the above list only features the top 10 Ethereum-based stablecoins according to our Brand Index. In the coming days, we’ll be releasing the full Brand Index rankings of all ERC-20 stablecoins in our database. Make sure to follow us on Twitter or sign up to Sanbase to see the complete list.