Stablecoin supply on cryptocurrency exchanges dropped 50% in 4 months

Glassnode data on March 26 shows that the supply of stablecoins on exchanges has more than halved to less than $24 billion in four months.

Stablecoin supply on exchanges falls

In November, the supply of stablecoins on exchanges surpassed $44 billion. Still, this figure, triggered by several fundamental factors, including regulatory actions, has been shrinking over the months.

At the time of writing, only around $24 billion is held on various cryptocurrency exchanges. Some analysts believe that much of it could have been converted into other crypto assets or liquid currencies, including bitcoin (BTC) and ethereum (ETH), or solid cash like the USD.

In crypto, stablecoins track the value of other assets that are perceived to be stable. Stablecoins that track fiat currencies like the USD are popular.

Common ones include USDT, a token present on multiple blockchains like Tron and Ethereum, issued by Tether Holdings. It is pegged to the USD. Its issuers claim that the token is sufficiently backed by cash and cash equivalents, including short-term United States securities such as Treasury bonds. Other alternatives include USDC from Circle, BUSD from Paxos, and DAI, a MakerDAO algorithmic stablecoin minted only on Ethereum.

Historically, stablecoins have served as conduits, allowing users to funnel funds from traditional finance into the cryptocurrency market.

Since stablecoins are theoretically “stable” and diverge from crypto assets like bitcoin, which are volatile, tokens like DAI, USDT, and USDC can act as shields when cryptocurrency prices are under selloff pressure.

Regulatory Changes and Unpegging of Stablecoins

There could be several explanations behind the sharp contraction in the supply of stablecoins on exchanges.

Last month, the New York Department of Financial Services (NYDFS) ordered Paxos, the issuer of BUSD, a stablecoin, to stop minting new tokens. It comes hours after the United States Securities and Exchange Commission (SEC) issued a Notice from Wells to Paxos, alleging that BUSD was a security. This forced BUSD holders to convert to other stablecoins and assets, mainly USDT and USDC.

Days later, the run on the Silicon Valley Bank (SVB) affected Circle, the issuer of USDC. Circle had $3.3 billion tied up in SVB. This sent markets into a panic, forcing USDC to de-peg as users rushed out of USDT, which was trading at a premium at the time. USDC’s exit also affected DAI, which disengaged.