Stablecoin Supply Decreases Over Quarter For First Time In History

Key Takeaways

• The total supply of stablecoins dropped for the first time in history.
• CoinMetrics charts show that over $13 billion has been redeemed directly from the treasures of major issuers, including $7 billion from Tether.
• The drop may be due to fears of protocol or company insolvency following UST’s spectacular implosion.

Stablecoin redemptions have reached a historic high, with more than $10 billion redeemed across major issuers and about $3 billion retired from MakerDAO.

Supply Shrinks By At Least $13 Billion

The total supply of stablecoins is decreasing, CoinMetrics data shows.

According to CoinMetrics head of research and development 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 over $10 billion had been redeemed directly from the treasuries of major issuers such as USDT, DAI, and PAX. USDC and BUSD, with supply rebounding after a multi-billion dollar drop in May, were exceptions to the rule.

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

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.

He shared another graph indicating that MakerDAO’s DAI had reduced its supply 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 due to the stablecoin’s collapse. UST broke its $1 peg in May and crashed the entire Terra ecosystem, directly wiping out over $43 billion in value from the market. The sudden increase in stablecoin redemption could be attributed to broad market concerns about protocol or company solvency.

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