Stablecoin supply drops in quarter for first time in history

Key points to remember

  • The total supply of stablecoins has fallen for the first time in history.
  • CoinMetrics charts show that more than $13 billion was redeemed directly from treasuries of major issuers, including $7 billion from Tether.
  • The decline may be due to fears of protocol or corporate insolvency following the spectacular implosion of UST.

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Stablecoin redemptions hit an all-time high, with over $10 billion redeemed by top issuers and around $3 billion withdrawn from MakerDAO.

Supply drops by at least $13 billion

The total supply of stablecoins is shrinking, according to data from CoinMetrics.

According to Lucas Nuzzi, head of research and development at CoinMetrics, the second financial quarter of 2022 is the first time in history that there are fewer stablecoins in circulation. He shared a graph showing that over $10 billion had been redeemed directly from the treasuries of major issuers such as USDT, DAI and PAX. USDC and BUSD, with a rebound in supply after a multi-billion dollar drop in May, were the exception.

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

Nuzzi sharp Of all the centralized issuers, Tether was the one that handled the most redemptions, with the total supply of USDT shrinking by around $7 billion on Ethereum, Tron, and Omnichain. He hypothesized that “the sharpness of this decrease [suggests] that a single entity, or small cohort, was behind” the takeovers.

He furthermore share another chart showing MakerDAO’s DAI had its supply reduced from over $9.5 billion to around $6.5 billion. Nazzi interpreted the 30% drop as partly the result of the “largest liquidation event in [the protocol]the story.

Although the research deliberately excluded Terra’s UST, it’s easy to imagine that the sudden crunch in the total stablecoin supply was due to the collapse of the stablecoin. UST broken its peg at $1 in May and crushed the entire Terra ecosystem, directly wiping over $43 billion in market value. The sudden increase in stablecoin redemption could be attributed to general market concerns about the protocol or the solvency of the company.

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

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