In such a fast-growing industry as crypto asset markets, it can be overwhelming to try to extract the main themes driving liquidity and investor interest. Yet, doing so helps to understand how relatively new markets evolve, and what the catalysts will be for the next big steps forward.

The latest CoinDesk Research Quarterly Review focuses on three features that have exhibited astonishing growth in Q3 and are playing a significant role in the evolving maturity of the digital asset markets.

In 24 charts, we look at stablecoins, decentralized finance (DeFi) and derivatives, and tease out some intriguing findings.

It is a common misconception that fiat-based stablecoin prices never vary relative to the underlying currency (usually the dollar). This is not true. They are pegged to a fixed unit, but in reality their market prices fluctuate around that level.

This allows for arbitrage opportunities in which investors can mint a stablecoin for $1 and sell it on the market for $1.0003, for example. Multiplied by millions, this can generate a handsome profit. Selling pressure will bring the stablecoin value down towards its pegged price.

Over Q3, the supply of USDC, the second-largest stablecoin by market cap, grew much more than that of tether (USDT), the largest stablecoin, even though the arbitrage opportunities (as measured by the standard deviation of the stablecoin prices) were greater with USDT. This hints at a growing demand for USDC from institutional investors and traders: USDC is run by licensed, U.S.-based firms and has taken a more regulatory-friendly approach.

Ethereum’s market capitalization increased 60% in Q3 2020, growing from $25 billion to $40.5 billion by the end of September. The market capitalization of the top 10 DeFi coins by total value locked saw an even greater increase over the quarter, growing over 345% from $1.2 billion to $5.3 billion. Aggregated as one, the market capitalization of DeFi nows makes up roughly 12% of total market value on the blockchain, and has emerged as the driving narrative for the Ethereum ecosystem.

Ethereum emerged in 2014 with the aim of being the “world’s computer.” In the ICO boom of 2017, it became the “fundraising platform of the future.” Now, the role of Ethereum in the evolution of decentralized finance is yet again changing the blockchain’s narrative. This could impact not only the levels of interest from both retail and institutional investors; it could also influence technological considerations, especially at a time when the underlying technology is undergoing a profound transformation as the ecosystem migrates to Ethereum 2.0.

While the ether futures market is still a fraction of that of bitcoin, it is starting to exhibit some catch-up activity. Both daily transaction volume and aggregated open interest (OI) in ether futures set dramatic new records, reaching $14 billion on Aug. 2 and $1.7 billion on Aug. 15, respectively. In September, both have fallen back to an elevated “new normal.”

This shows the strong growth in the Ethereum ecosystem and hints at growing institutional acceptance of ether as an investment and trading asset. It also highlights the evolution of crypto markets as a whole – a pre-requisite for a mature market is a lively derivatives market. So far, the derivatives market has been dominated by bitcoin futures. Greater diversity will lead to a healthier market overall.

You can download the report from our Research Hub here.