Stablecoins showed one of their main roles during this week’s market correction. They served as a tool to park funds in a more stable asset, while being prepared to buy the dip.
Stablecoins have survived one of their peak days in terms of raw volumes, caused by a mix of centralized and DEX trading, as well as DeFi liquidations. This week’s market correction turned into a stress test for multiple protocols, both in terms of transaction speed and keeping the peg for collateralized stablecoins.
Peter Schroeder, marketing expert for Circle, Inc., pointed out the sudden peak in stablecoin usage on August 5. The stress put a load on collateralized stablecoins, which had to handle extraordinary printing and redeeming volumes.
During the latest episode of market turbulence, Tether (USDT) also had to grow its supply, rising to a high of 114.7B tokens. Soon after that, the supply shrank by 200M. Circle (USDC) also added 1B tokens to its supply since August 5, to handle the increasing activity.
Stablecoin supply is now estimated between $154B to $165B, with the most influence from USDT and USDC. Trading volumes for USDT spiked to levels not seen since the market peak in March and rivaling levels not seen since the bull market of 2021. The dominance of USDT is also close to its two-year moving average, after new tokens flowed into the market. The increased supply of USDT is seen as one of the keys to the relatively quick bounce from recent lows.
USDC also achieved an all-time high volume above $24B during the most active day on August 5. The token also had to balance redemptions and mints, although new token generation surpassed redemptions.
In the case of USDT, on-chain data showed the token works as a liquidity intervention and spreads quickly across the entire crypto ecosystem. Cumberland, the provider of deep crypto liquidity, was among the top movers of USDT tokens, making $95M in deposits to leading centralized markets.
Yesterday, stablecoins experienced the highest number of single day transfers of all time.
USDC alone saw:
• $36b in volume• $822m minted• $380m redeemed
Stablecoin stress test = passed. pic.twitter.com/m3hFZ3UVWF
— Peter Schroeder (@peterschroederr) August 6, 2024
Turbulence tested all types of stablecoins
Not all stablecoins reacted the same way in the recent market turbulence. Some used the volatility to grow their supply, while others relied on redemptions. The latest market crunch caused USDe by Ethena to shrink its supply, but GHO by Aave managed to expand by 2% in the past week.
DAI also went through a small net contraction of the supply, as well as the algorithmic stablecoin FRAX. Reserve Protocol became an outlier, with the supply of eUSD growing by 87% in the past week. The token is still niche, carried by 686 wallets, but has been spreading to other DeFi protocols in yield pools.
The recent market moves also boosted the performance of USDC on Base, leading to new records after months of building up volumes. USDC made up close to 20% of all stablecoin transfers, with more than 500K active wallets. Overall, stablecoins saw 2.43M active wallets during the latest episode of market turbulence.
Base has also helped otherwise less-active stablecoins pegged to the Euro to increase their usage. EURC grew its activity, leading to a supply of 40M EUR, after falling to a low of 32M EUR. Euro-based stablecoins are more rare, but Base is reaching users that may find the token more useful.
Stablecoins differ in their use cases
Not all stablecoins are used in the same way, especially based on the length of holding. Leading coins are held for a longer time, and are dominated by whales who park their long-term liquidity in USDT and USDC.
GUSD and BUSD, both exchange-based stablecoins, have a more limited exposure to whales. The two assets have frozen their supply, and are mostly limited to centralized trading.
USDT and USDC holders usually don’t move their coins for months, and some hold longer than a year. At the other end of the spectrum, stablecoins like MKUSD and PYUSD are held for around 30-33 days and used for short-term transfers.
Aave’s GHO is held for 45 days, and FRAX usually leaves wallets after an average of 52 days. CRVUSD is usually held for about 100 days, reflecting its usage as a liquidity token.
Cryptopolitan reporting by Hristina Vasileva
