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Cryptocurrency ecosystems invariably include stablecoins, which offer safe havens by reducing volatility. Typically tied to fiat currencies, these tokens are minted on blockchain technology and are backed by external assets corresponding to the fiat reserves. One of the most recognized is undoubtedly Tether (USDT).
Stablecoins Provide Protection Against Volatility
Tether is supported by a large reserve of US Dollars, thus known as a fiat-backed stablecoin type. Besides Tether, other popular stablecoins like USD Coin (USDC) and Dai (DAI) exist. Particularly, Dai stands out as a crypto-collateralized stablecoin, supported by other cryptocurrencies like Ethereum and Bitcoin.
Stablecoins offer their holders the option to convert their crypto assets into stablecoins, providing a shield against volatility. This also presents a significant source of liquidity. The value of stablecoins generally remains stable despite intense selling waves.
Market Value of Stablecoins
Looking at the share of stablecoins in the total cryptocurrency market value, they currently hold an 8.42% share, corresponding to a value of $156 billion.
However, the market value of stablecoins decreased during the 2022 bear market after reaching an all-time high of $188 billion in April 2022. This decline was likely due to disillusioned cryptocurrency participants moving back to traditional assets and exiting the market.
Cryptocurrency regulations can also impact the future of stablecoins. For example, in November 2023, the New York Financial Services Department (NYDFS) ordered Paxos to stop minting tokens. Similarly, Binance decided to gradually phase out its stablecoin known as Binance USD (BUSD), leading to a loss of market interest in BUSD.
Tether Dominates 70% of the Stablecoin Market
Tether holds a leading position in the stablecoin market with 70.04% of the market value, with its closest competitor, USDC, holding a 21.36% share. This situation indicates the market’s preference for Tether.
Recently, the market value of stablecoins has shown significant growth. With the rise in prices in Bitcoin and cryptocurrency markets, this upward trend has continued notably since October 2023. This increase reflects a rise in purchasing power in the market and is generally considered a positive sign.
However, the recorded data on the net flow of stablecoins in exchanges is somewhat concerning. Since October 2023, the net flow of stablecoins in exchanges has been negative. This trend has been ongoing since November 2022 and could indicate an increase in selling pressure over the last 18 months.
Market sentiment could likely be negatively affected by this scenario. However, there is a notable detail: the only significant positive entry into exchanges occurred between January and May 2022. This shows that there were periods of positive momentum in the market.
