Stablecoin supply decreases for the first time in history

key takeaways

  • The total supply of stablecoins fell for the first time in history.
  • CoinMetrics charts show that more than $13 billion has been redeemed directly from the treasuries of major issuers, including $7 billion from Tether.
  • The fall may be due to fears of formal or company insolvency after the spectacular implosion of the UST.

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Stablecoin swaps have reached an all-time high, with over $10 billion swapped across major issuers and around $3 billion withdrawn from MakerDAO.

The offer is reduced by at least $13 billion

The total supply of stablecoins is declining, data from CoinMetrics shows.

According to the head of research and development at CoinMetrics, Lucas Nuzzi, the second financial quarter of 2022 is the First time in history that there are fewer stablecoins in circulation. He shared a chart showing that more than $10 billion had been redeemed directly from the treasuries of major issuers like USDT, DAI, and PAX. USDC and BUSD, with supply rebounding after a multi-billion dollar crash in May, were exceptions to the rule.

Stablecoins are cryptocurrencies that aim to maintain a 1:1 ratio with a government-issued currency of your choice, such as the dollar, euro, or yen. To achieve that goal, some stablecoins are backed by reserves or collateral (USDT, DAI), while others are based on complex algorithms (FRAX, the latest UST). Stablecoins can also be issued by centralized companies (Tether, Circle) or by decentralized protocols (MakerDAO, Frax Finance).

Nuzzi pointed Of all centralized issuers, Tether processed the most swaps, with the total USDT supply declining by roughly $7 billion across Ethereum, Tron, and Omnichain. He speculated that the “sharpness of that decline [suggests] that a single entity, or small cohort, was behind” the redemptions.

he also shared another graph indicating that MakerDAO’s DAI had seen its supply reduced from over $9.5 billion to around $6.5 billion. Nazzi interpreted the 30% decline as a partial result of the “largest liquidation event in [the protocol]the history.”

While the research deliberately excluded the Terra UST, it is easy to imagine that the sudden tightening of the total stablecoin supply is due to the collapse of stablecoins. UST broke its $1 peg in May and collapsed the entire Terra ecosystem, directly wiping out over $43 billion in value from the market. The sudden spike in stablecoin swapping could be attributed to broad market concerns about the protocol or the company’s solvency.

Disclosure: At the time of writing, the author of this article owned ETH and several other cryptocurrencies.

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