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Decrease of 50% in Stablecoin Supply on Crypto Exchanges in 4 Months


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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.

Decreased supply of stablecoins on stock exchanges

In November, the supply of stablecoins on exchanges amounted to more than $44 billion. However, that number, caused by several underlying factors, including regulatory actions, has shrunk over the months.

As of this writing, only about $24 billion is held on several cryptocurrency exchanges. Some analysts believe that a significant portion may have been converted into other liquid crypto assets or currencies, including bitcoin (BTC) and ethereum (ETH), or hard cash such as the US dollar.

In cryptocurrencies, stablecoins track the value of other assets that are perceived as stable. Stablecoins that follow fiat currencies like the US dollar are common.

Popular ones include USDT, a token found on several blockchains such as Tron and Ethereum, issued by Tether Holdings. It is pegged to the US dollar. Its issuers claim that the token is adequately backed by cash and cash equivalents, including short-term US securities such as Treasury bills. Other alternatives include USDC by Circle, BUSD by Paxos, and DAI, an algorithmic stablecoin by MakerDAO minted solely on Ethereum.

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

Since stablecoins are theoretically “stable” and separate from crypto assets like Bitcoin, which are considered volatile, tokens like DAI, USDT, and USDC can act as shields when cryptocurrency prices are under liquidation 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. This comes hours after the US Securities and Exchange Commission (SEC) issued a notice from Wells to Paxos, claiming that BUSD was a security. This forced BUSD holders to convert to other stablecoins and assets, mostly USDT and USDC.

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Days later, the bank’s run at Silicon Valley Bank (SVB) took its toll on Circle, the USDC issuer. Circle was stuck with $3.3 billion in SVB. This triggered a panic in the markets, forcing USDC to disengage as users rushed to exit USDT, which at the time was trading at a premium. The exit from USDC also affected the DAI, which decoupled.

Analysts point out that the destabilization of stablecoins and increased regulatory pressure could be the reason for token holders’ exit to legacy network currencies, including Bitcoin. As of writing on March 26, Bitcoin is trading at $27,831, up 15% in the past month.

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