Stablecoin supply saw the largest quarterly contraction in history in Q2

cryptoslatePublished on 2022-07-27Last updated on 2022-07-27

Abstract

The downturn was triggered by the collapse of TerraUSD in May, which paved the way for market share growth of fiat-backed stablecoins.

Total stablecoin supply contracted to $151.3 billion in the second quarter of 2022, a drop of 18.8% or $35.1 billion over Q1, according to a report by Arcane Research.

This is the largest quarterly drop in supply in the history of stablecoins, the report states.

However, the research, which studied the 13 largest stablecoins, showed that stablecoin supply steadily increased in the first four months of 2022. But the 50% annualized growth rate between January and April was slower than the 500% annualized growth in the last five months of 2021, the report stated.

It was the collapse of TerraUSD (UST), which wiped off $18 billion from the stablecoin market in weeks, that triggered the reduction in stablecoin supply, according to the report.

Between May 16 and July 1, the total stablecoin supply dropped by 5.4%, or 35.8% annualized. Arcane Research said this is the first time they have seen sustained negative supply growth.

The supply of Tether (USDT), the largest stablecoin by market cap, dropped by over 15% as its market cap fell from $78.4 billion to $66.3 billion in H1 2022, the report stated.

Arcane Research said the fall in USDT supply can be attributed to the Terra collapse in May which caused USDT to lose its dollar peg. Moreover, Tether saw increasing redemption requests as the market grew weary of stablecoins in the aftermath of Terra.

If the supply growth continues at the same pace, USDCoin (USDC) would dethrone USDT as the largest stablecoin on October 10, the report stated.

Additionally, the research stated that the market cap of algorithmic stablecoins plummeted by 77.4% from $13.3 billion to $3 billion in H1 2022. The collapse of USTC, which evaporated $9.7 billion was responsible for around 94.2% of the market cap contraction, the report said.

This caused the market dominance of algorithmic stablecoins to drop from 8% to 2% in H1 2022, the report stated. This in turn paved the way for an 11.9% increase in the market share of fiat-backed stablecoins, led by USDC and BinanceUSD (BUSD), Arcane Research said.

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April 2019: The initial release of the Terra blockchain, initiating its journey into the broader cryptocurrency landscape. 2021: Terra experiences remarkable growth as its total value locked (TVL) reaches new heights, positioning it as a dominant player in decentralized finance (DeFi). May 2022: A turbulent period arises as the Terra blockchain is temporarily halted following the collapse of UST and LUNA, leading to a significant impact on market perception and capitalization. January 2024: Terraform Labs files for bankruptcy, marking another critical event in the project's history, sparking discussions on the sustainability and future of the ecosystem. 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Swaps and Exchanges The ecosystem provides functionality for seamless asset exchanges. Notable features include native swapping capabilities and platforms such as Terraswap, allowing users to exchange Terra assets efficiently while benefiting from competitive rates. Governance Governance plays a critical role in the decentralized nature of the Terra Ecosystem. Token holders use their LUNA tokens to propose changes or vote on proposals that affect the network, ensuring collective decision-making and community involvement in the ecosystem's evolution. Notable Projects in the Terra Ecosystem Beyond the core functionalities, the Terra Ecosystem is also home to notable projects that further augment its capabilities: Terraswap: This decentralized exchange (DEX) emerged to facilitate easy swapping of Terra assets, thus promoting a vibrant trading environment within the ecosystem. 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The Terra Ecosystem, with its robust features and innovative approach, holds promise as it seeks to redefine the landscape of digital currency use, remaining a focal point for enthusiasts and investors alike in the ongoing evolution of blockchain technology.

1.7k Total ViewsPublished 2024.12.17Updated 2024.12.17

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Stablecoin supply saw the largest quarterly contraction in history in Q2

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