The total supply of stablecoins saw its sharpest decline in history during the second quarter of 2022, with stablecoin redemptions increasing due to “short-term liquidity and insolvency concerns that were not present during the 2020 panic,” according to data analytics firm Coinmetrics.
CoinMetrics head of research and development Lucas Nuzzi highlighted the data via Twitter on June 16, with a graph showing the total supply of stable coins since January 2020.
“22Q2 is the first time in the history of stable currencies that the total supply has decreased. Even if we exclude UST, more than 10B * were redeemed directly from the treasury * of large issuers. ”
The list included DAI, USDTOMNI en TRON, SAI, USDK, PAX. While Circle’s USDC and Binance’s BUSD are compiled in a separate graph. Terra’s original variant of UST is not included in the graph.
22Q2 is the first time in the history of stable currencies where total supply has declined.
Even if we exclude UST, more than 10B * were redeemed directly from the treasury * by large issuers
Some @coinmetrics data pic.twitter.com/AcCKx4Qp4z
– Lucas Nuzzi (@LucasNuzzi) 15 June 2022
Nuzzi noticed this Tether saw the most redemptions of all centralized stablecoin issuers, with 7 billion of the total USDT supply wiped off the board in April and May, and was likely caused by actions of a few, rather than any significant market-wide movements.
“The sharpness of that decline suggests that a single entity, or small cohort, was behind it,” he said.
The collapse of the Terra ecosystem, including its native LUNA token and UST stablecoin in May, coincided with Tether’s USDT decoupling of the US dollar by about 5%. As a result, about $ 7 billion was redeemed as major players wanted to leave the market and avoid any further potential carnage.
Another project that suffered a major blow was MakerDAO’s DAI, which saw 40% of its stock retire due to the “biggest liquidation event in its history.”
USDC and BUSD are also included in a separate chart, also showing a sharp drop in supply of around 5 billion in May, but both have recovered since then and are close to returning to their respective record highs of around 65 billion and 48 billion per pop.
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The unique market conditions of 2022 provide a plausible explanation for why stablecoin users have taken risks off the table in recent weeks.
So far, the crypto sector has seen the Terra ecosystem collapse to the tune of about $ 40 billion, while lending platform Celsius and venture capital firm Three Arrows Capital have also fight to avoid insolvency partly due to reported liquidations, exposure to Terra, declining asset prices and potentially unsustainable business models.
Tether, who was also exposed to Celsius through $ 10 million in equity investment in 2020 and a $ 1 billion loan he gave to the company last year, issued a statement on Monday note that the declining price of Celsius indigenous tokens and the firm’s liquidity problems will have “no impact” on its reserves.
The firm said its lending activity with Celsius was “always guaranteed.”