Stablecoin Supply Drops for the First Time in History

Supply is shrinking by at least $13 trillion

CoinMetrics data indicates that stablecoin supply is declining.

According to Lucas Nuzzi (CrownMetrics Head of Research and Development), the second quarter of 2022 will be the financial quarter. first time in history there are less stablecoins currently in circulation. He shared a chart that showed that $10 billion of the USDT, DAI, PAX treasuries had been used to redeem these major issues. BUSD and USDC, which saw supply rebound after a multibillion-dollar drop in May, were the exceptions to this rule.

Stablecoins, cryptocurrencies, aim to maintain a 1:1 ratio with any government-issued currency they choose, such as the dollar or the euro. Some stablecoins have collateral or reserves (USDT, DAI), while others rely upon complex algorithms (FRAX and the late UST). Tether, Circle and Frax Finance may issue stablecoins.

Nuzzi pointed out that of all centralized issuers, Tether was the one processing the most redemptions, with USDT’s total supply decreasing by about $7 billion across Ethereum, Tron, and Omnichain. He speculated that the “sharpness of that decrease [suggests] that a single entity, or small cohort, was behind” the redemptions.

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

While the research purposefully excluded Terra’s UST, it is easy to imagine the sudden tightening of stablecoin total supply being due to the stablecoin’s collapse. UST BrokenIts $1 peg in May crashed Terra’s entire ecosystem, wiping out $43 billion of market value. Broad market concerns regarding protocol or company solvency could explain the rapid increase in stablecoin redeemability.

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