FTX and The Second Great Stablecoin War

There’s a new competitor in the Great Stablecoin War, as FTX CEO Sam Bankman-Fried is teasing an FTX stablecoin.

Let’s break down what this means and why it’s a big deal.

Importance of Stablecoins

Stablecoins (tokens pegged to an underlying asset or commodity) are vitally important to crypto. Besides being the best way to send money on-chain, they are also the dominant form of on-chain collateral. In other words, in most crypto lending and borrowing apps, stablecoins are the token used to lend and borrow.

Whoever controls the stablecoins controls a large portion of crypto. The hearty revenue from interest rates is just an added plus.

And that is why the big players are now at war.

The Second Great Stablecoin War

The Second Great Stablecoin War was coined by SBF, and it follows (naturally) the First Great Stablecoin War of ~2018 in which USDC and USDT were the victors.

However, that dominance is now under attack. The first shots came from Binance auto-converting every stablecoin on the exchange into BUSD, Binance’s native stablecoin.The result has been a surge in BUSD supply and a decline in USDC supply.

Now, FTX wants its own stablecoin too. This carries two main consequences for investors:

1. It is bearish for decentralized stablecoins such as DAI and FRAX, as it is likely that FTX would force all trading to go through its own stablecoin.

2. It is bullish for stablecoin exchanges such as Curve, as a fragmented stablecoin market means traders need a place to swap between coins.

Regardless of what FTX ultimately does, considering that DeFi powerhouses Aave and Curve are both also developing their own stablecoins, it is clear that the Second Great Stablecoin War is here to stay.