Stablecoin Supply Decreases for First Time in History

Stablecoin redemptions have reached a historic high, with more than $10 billion redeemed across major issuers and about $3 billion retired from MakerDAO.

Supply Shrinks By At Least $13 billion

The total supply of stablecoins is decreasing, CoinMetrics data shows.

According to CoinMetrics head of research and development Lucas Nuzzi, the second financial quarter of 2022 is the first time in history that there are fewer stablecoins in circulation. He shared a chart showing that over $10 billion had been redeemed directly from the treasuries of major issuers such as USDT, DAI and PAX. USDC and BUSD, with supply rebounding after a multi-billion dollar drop in May, were exceptions to the rule.

Stablecoins are cryptocurrencies that aim to retain a 1:1 ratio with a government-issued currency of their choice, such as the dollar, the euro, or the yen. To achieve that goal some stablecoins are backed with reserves or collateral (USDT, DAI) while others rely on complex algorithms (FRAX, the late UST). Stablecoins may also be issued by centralized companies (Tether, Circle) or by decentralized protocols (MakerDAO, Frax Finance).

Nuzzi pointed out that of all centralized issuers, Tether was the one processing the most redemptions, with USDT’s total supply decreasing by about $7 billion across Ethereum, Tron, and Omnichain. He speculated that the “sharpness of that decrease [suggests] that a single entity, or small cohort, was behind” the redemptions.

He furthermore shared another graph indicating that MakerDAO’s DAI had seen its supply reduced from over $9.5 billion to about $6.5 billion. Nazzi interpreted the 30% decrease as partially the result of the “largest liquidation event in [the protocol]’s history.”

While the research purposefully excluded Terra’s UST, it is easy to imagine the sudden tightening of stablecoin total supply being due to the stablecoin’s collapse. UST broke its $1 peg in May and crashed the entire Terra ecosystem, directly wiping out over $43 billion in value from the market. The sudden increase in stablecoin redemption could be attributed to broad market concerns about protocol or company solvency.

Disclosure: At the time of writing, the author of this piece owned ETH and several other cryptocurrencies.