Stablecoin Market Capitalization Drops 35% in 18 Months, DeFiLlama Data Shows

DeFiLlama’s Stablecoin Data

Stablecoins have had a rough ride in the past 18 months. Since Terraform’s Stablecoin UST collapsed in May 2022, the total market cap for stablecoins has dropped more than 35%. According to data from crypto analytics platform DeFiLlama, stablecoin’s market valuation was at $189.2 billion 18 months ago but declined to $124.1 billion as of October 8.

Reasons Driving the Drop in Stablecoin Market Cap

The founder of Bluechip, Vaidya Pallasena, whose company evaluates stablecoin safety, has pointed out a number of reasons leading to the drop. He says participation from retail investors has reduced significantly. He notes that the daily trading volumes have dropped to $50 billion from $200 billion in 2021.

Moreover, Pallasena explains that in July 2022, when the United States treasury yield began increasing and there was no massive volatility in the crypto market, most investors opted for risk-free yields rather than stablecoins.

Castle Island Ventures co-founder Nic Carter also says that the rising interest rates in the traditional finance sector, which now exceeds crypto-native yields, could be the primary driver of the drop witnessed in the stablecoin market cap.

Carter does not expect investors to convert their fiat money to stablecoins until the current high interest rates decline or crypto-native yields surge.

The Stablecoin Market

There are several stablecoins in the market, the most popular being TUSD, BUSD, USDC, DAI, and USDT. These five coins account for 95% of the total market cap. USDT retains the top position despite some crypto analysts claiming it has “a peg stability” issue.

Tether’s USDT suffered massive losses last year when UST crashed but has since recovered. It now has a market valuation of $83.2 billion, accounting for 67.5% of the entire market cap.

The second-biggest stablecoin is USDC. Unlike USDT, its market capitalization has been dropping since last March, when it depegged amid a banking crisis that caused several crypto-friendly banks to collapse. Its issuer, Circle, has embarked on a mission to revive interest in the stablecoin. The firm recently announced its partnership with a Chile-based fintech company, MercadoPago, to make USDC available to Chileans.

Meanwhile, Pallasena says a favorable regulatory environment and reduced interest rates could fuel interest in stablecoins, which may drive the market cap upwards.