State of Stablecoins: Signs of Returning Liquidity
Get the best data-driven crypto insights and analysis every week: State of Stablecoins: Signs of Returning LiquidityBy: Tanay Ved IntroductionStablecoins have emerged as a crucial pillar within the dynamically evolving digital asset ecosystem. Serving as a stable store of value, they bring resilience amidst tides of volatility, providing stability and utility not only in mature markets but also emerging economies grappling with high inflation and barriers to accessing financial infrastructure. The borderless and around-the-clock nature of stablecoins enable seamless cross-border transactions and remittances, making them an instrumental medium of exchange. Beyond these functions, stablecoins also act as a vital bridge to the decentralized finance (DeFi) and traditional financial economy, underpinning trading and lending operations and serving as a barometer for activity on public blockchains. This unique value proposition has propelled the rise of the digital dollars market, peaking at $155 billion in market capitalization in 2022 before declining to $112 billion, a reflection of various challenges that have tempered growth. However, with recent uplifts in digital asset valuations, there's been a noticeable resurgence in stablecoin supply, suggesting a potential revival of on-chain liquidity and the demand for stablecoins in both falling and rising markets. In this issue of Coin Metrics’ State of the Network, we take a closer look at stablecoin supply, usage and adoption, as well as emerging trends shaping the landscape as we potentially transition into a different market regime. Market Cap & Supply TrendsThe market capitalization of the asset class today primarily comprises USDT and USDC, which make up the lion's share of total supply. The recent rise has been fuelled by the growth of Tether (USDT) on the Ethereum ($41 billion) and Tron ($48 billion) networks respectively, resulting in an all time high market cap of $88 billion for Tether, as Circle’s USDC stabilizes at $22.5 billion. Despite the dominance of fiat-collateralized stablecoins, the growth of stablecoins collateralized by crypto-assets (i.e, ETH) and off-chain assets (i.e, public securities) underscores the growing diversity and adaptability of the asset class. Source: Coin Metrics Network Data This is reflected in the chart below, which illustrates weekly changes in stablecoin supply over the year. In the aftermath of significant events like the Luna collapse in June 2022, and the Silicon Valley Bank (SVB) crisis in March, we observed a notable decline in total stablecoin supply, indicative of wavering market confidence. However, since October 2023, the aggregate stablecoin supply has trended upwards, marking a shift towards positive growth. This upward trend can be interpreted as a leading indicator of improving liquidity on-chain, suggesting an environment where more capital is available for deployment. Source: Coin Metrics Network Data Source: Coin Metrics Network Data
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