According to the latest report provided by Six Degree, an on-chain data analysis company, the recent crypto market rally has not been supported by a significant influx of capital into the sector, as the supply of stablecoins on the Ethereum blockchain has decreased compared to 2022.
To tell the truth, the total supply of stablecoins has decreased in recent years, with the only exception being the Tron network, which has seen an increase in this metric.
BUSD and USDC have been the most affected assets by this downward trend, while USDT has strengthened its dominance in the market by increasing its capitalization.
What does all this mean for the crypto market? Should we expect a growth of the stablecoin market on the Ethereum blockchain before witnessing the true cryptocurrency bull run?
Let’s see all the details below.
Summary
The latest report from Six Degree highlights a significant drop in the supply of stablecoins on the Ethereum blockchain from 2022 to date
According to the latest report from the on-chain analysis company Six Degree, the supply of stablecoins on the Ethereum blockchain has decreased by over 35% since reaching its peak in March 2022.
In that period, the total supply of fiat-backed stable cryptographic coins on the chain had a value of 108 billion dollars compared to the current 67.5 billion dollars.
The entire bear market of 2022 was driven by a redemption of these cryptographic assets that were moved from Ethereum to fiat currencies, in a continuous downward trend.
Only at the end of September/beginning of October 2023 did things start to take a different turn, with the total supply of stablecoins on the blockchain starting to grow again but at a very slow pace.
This trend has not only affected Ethereum but all decentralized networks that support stablecoins, with the only exceptional case represented by Tron which has seen the aforementioned metric increase by 57% from 2022 to date.
Looking more closely at the composition of the Ethereum stable market, we can see that almost half of these tokens are held in so-called “external owned accounts” (EOA), which are addresses of private users.
A good 30% is managed by centralized exchanges which represent the main trading platforms for exchanges between stablecoins and bitcoin.
Following are other entities that own a significant portion of stable on Ethereum: Bridge, DeFi protocols, and multisignature wallets (which usually represent the wallets of crypto project teams).
It is very interesting to note how the Six Degree report relates the trend of stablecoin supply on Ethereum with the price performance of Bitcoin in recent years.
In particular, the focus of attention is on the fact that during the last bull market of 2021, the price growth of Bitcoin was accompanied by an increase in the presence of stablecoins in DeFi on the blockchain in question.
At the same time, the bearish market that started in 2022 saw a strong contraction of these coins in DeFi, which shortly after reached one of the lowest values in recent years.
The relationship was only recently interrupted with the latest crypto market rally, in which there was no longer the same interdependence between stablecoins in DeFi on Ethereum.
This is a positive signal for ETH and for the market as a whole: when the stable sector sees a return to the all-time highs of 2022, we can expect a very strong price pump for the major crypto assets.
Tether (USDT) supply growing at the expense of USDC and BUSD
Trying to observe the situation more closely, without focusing exclusively on the Ethereum blockchain stablecoin market, let’s see which coins have contributed the most to the contraction of 2022 just described in the previous paragraph.
It is immediately noticeable that Tether (USDT), after experiencing a slight decrease in its total supply in mid-2022, immediately recovered all the lost ground, even reaching historical highs in terms of market capitalization for stablecoins.
Paolo Ardoino’s currency is therefore the only exception to this trend.
The largest growth has been in the Tron network, which currently has 48.8 billion USDT, while on Ethereum the currency has barely managed to recover the 2022 highs at 41 billion USDT.
Other blockchains like BSC, Arbitrum, Solana, etc., capitalize on a small percentage of the total supply of crypto held by Tether.
On the opposite side, we can clearly see that USDC represents one of the main contributors to the decrease in the total supply of stablecoins on Ethereum.
On this chain, in fact, the currency still has a deficit of 25.6 billion dollars compared to the historical highs of February 2022.
Unlike USDT, the presence of USDC on Tron is non-existent, and in general, the supply of the stablecoin has not recovered from last year’s sharp decline.
The hope is that the bearish trend can stabilize and that USDC can attract capital that would likely be poured into DeFi applications, giving the right push for a rise in cryptocurrency prices.
Another protagonist of the reduction of stablecoins on the Ethereum blockchain is BUSD, a resource managed until recently by Binance and issued by Paxos, which a few months ago received a notice from the SEC to cease its activities.
In particular, Paxos is no longer authorized to issue this type of stablecoin and Binance is obliged to reduce its presence in the market.
Due to these events, the federal agency BUSD has seen a drastic reduction in its market strength, going from 18.19 billion dollars in February 2022 to the current 1.46 billion dollars.
Obviously BUSD is destined to disappear.
