Stablecoin Supply Falls Sharply for 1st Time Ever

UTC by John K. Kumi · 3 min read
Stablecoin Supply Falls Sharply for 1st Time Ever
Photo: Depositphotos

According to the report, the most redemption among all centralized stablecoins was experienced by Tether.

A report has disclosed that the stablecoin supply has seen a drastic fall in the second quarter of 2022 for the first time in its history. CoinMetrics head of research and development Lucas Nuzzi has hinted that the redemption of stablecoins directly from treasuries of the likes of USDT, DAI, and PAX. USDC and BUSD and other major issuers have reached $10 billion.

“22Q2 is the first time in the history of stablecoins where Total Supply decreased. Even if we exclude UST, over 10B has been redeemed *directly from the treasuries* of major issuers,” he said. 

According to the report, the most redemption among all centralized stablecoins was experienced by Tether. April and May saw 7 billion of the total supply of USDT wiped off. It was observed that this drastic decrease in supply was certainly not a result of any significant wide movement, but an activity of a few. USDC and BUSD showed in separate charts also saw a sharp reduction of 5 billion in their supply in May. It is, however, worth noting that both assets have now taken a rebound to near their all-time high of 65 billion and 48 billion respectively. 

“The sharpness of that decrease suggests that a single entity, or small cohort, was behind it,” said Nuzzi.

The report states that Tether USDT depegged from the US Dollar by 5%, and coincided with the implosion of the Terra ecosystem. The Terra crash caused hundreds of investors to lose millions of Dollars after almost all the leading cryptos fell by at least 80% from their all-time high. This caused big players to exit the market and avoid further loss.

MakerDAO’s DAI is another project that took a big hit after suffering from its worst liquidation event in history, seeing 40% of its supply retired. Lending platform Celsius and venture capital firm Three Arrows Capital, according to reports, are fighting to avoid “insolvency due in part to reported liquidations, exposure to Terra, declining asset prices, and potentially unsustainable business models.” Celsius has to halt all withdrawals on its platform due to extreme market conditions.

It is important to note that Tether is an early investor in Celsius with a $10 million contribution in equity investment to the platform in 2020. In a recent statement, Tether has clarified that its investment in Celsius has nothing to do with its reserves.

“While Tether’s investment portfolio does include an investment in the company, representing a minimal part of our shareholder’s equity, there is no correlation between this investment and our reserves or stability,” they said. 

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