Amid the rising prominence of Bitcoin and Ethereum, the stablecoin market has witnessed a decline in its dominance. Analysts suggest that after 16 consecutive months of decline, the stablecoin market dominance has fallen to 10.3% of the total crypto market capitalization. 03
According to a recent report from an on-chain intelligence firm, the current market capitalization is at its lowest level since August 2021. The report says that the declining trend since August marks the 16-month long consecutive trail.
On Thursday, CCData, crypto analytics firm, released a report stating that the stablecoin market cap fell 0.82% from the start of the month until July 17, taking the sector’s market cap to $127 billion. Simultaneously, the stablecoin market dominance took a slight decline and is currently at 10.3%, dropping from 10.5% in June.
Amongst the fall, out of the top ten stablecoins, Pax Dollar (USDP), took the hardest hit, falling 43.1% to $563 million in July, its lowest figure since December 2020. Analysts believe that the decline was largely attributed to MakerDAO, a decentralized autonomous organization behind the Maker protocol, which elected to remove $500 million of USDP from its reserves because it failed to accrue additional revenue.
Simultaneously, Tether, the largest stablecoin by market cap, managed to record its all-time high market cap of $83.8 billion. As of July 17, Tether increased its stablecoin market cap dominance to 65.9%.
According to the report, the market cap of USD Coin (USDC) and Binance USD (BUSD) fell 3.01% and 4.57% to $26.9 billion and $3.96 billion, respectively. For USDC, it is the seventh consecutive month of decline in its market cap and the lowest since June 2021.
Despite consecutive falls, stablecoin trading volumes increased 16.6% to about $483 billion in June, recording the first monthly increase since March.
Analysing the reasons behind this declining market cap, the report counts on the recent lawsuits against Binance and Coinbase from the Securities and Exchange Commission (SEC) along with the surge in spot Bitcoin exchange-traded fund (ETF) filings contributed to the increase in stablecoin trading volumes last month.
The suspension of fiat deposits has led to a drastic decline in the liquidity of the [USDT and USDC] stablecoins, resulting in a discount of around 27% and 18% respectively.
Simultaneously, another major event in June was the suspension of USD deposits on Binance US following the SEC’s lawsuit against the firm. The report highlighted that this triggered USDT and USDC to depeg from the U.S. dollar on the exchange.
Reportedly, the decentralized stablecoin market, which includes Dai (DAI), Frax (FRAX) and USDD (USDD) increased its market cap by 0.43% to $7.52 billion in July, the first positive month since February. However, the market cap, is still 78.1% down from its all-time high of $34.3 billion in April.
The beginning of this downward trend came from the collapse of the Terra Luna ecosystem and the near 100% depeg of the algorithmic stablecoin TerraClassicUSD (USTC). Following such events that started an industry wide chaos, the stablecoin market has witnessed decreasing market cap as well as some concerns among the lawmakers and regulators across the globe.
Notably, nations as well as international watchdogs are cautious about the stablecoin market. The regulators have particularly warned the stablecoin issuers to maintain their peg and be as transparent as much possible. Nonetheless, the future course of action will show that if the declining trend is going to continue or the events would take a turn.