Stablecoin Circulation Below $150 Billion
According to the latest data from DefiLlama, the overall circulation of stablecoins has decreased by approximately $38 billion since early May, now totaling $148.7 billion. The stablecoin ecosystem features a mix dominated by Tether (USDT) at $68.2 billion, USD Coin (USDC) at $46.7 billion, Binance USD (BUSD) at $21.4 billion, Dai (DAI) at $6.33 billion, and Frax stablecoin (FRAX) at $1.33 billion.
Declining Yields and Borrowing Demand
DeFi protocols like Aave have seen a significant decline in yield rates for stablecoins. Back in May, the annual variable percentage rates (APRs) for Binance USD, USD Coin, and DAI loans hovered around 3.5%. These rates have since dwindled to approximately 1.5%. The utilization rates, which measure the percentage of stablecoins borrowed against the total supplied, have also dipped to around 30%-40%, significantly below the optimal levels of 80% for these protocols.
Market Pressures from Traditional Finance
Unlike fiat deposits, where interest accrues automatically, stablecoin deposits in decentralized structures require users to lend out their funds or stake them on DeFi platforms to earn yields. Recent U.S. Federal Reserve interest rate hikes have created a more competitive environment for fiat-dollar interest accounts, making traditional banking more appealing and dampening the demand for borrowing stablecoins.
Impact of Project Collapses
The collapse of major projects like the algorithmic stablecoin Terra USD has also negatively impacted confidence within the stablecoin sector. Notably, the downfall of USTC in May accounted for nearly 50% of the observed $38 billion decrease in total stablecoin circulation. Additionally, Acala USD (aUSD) lost its peg in August due to a protocol exploit, leading the community to vote for the burning of the majority of minted aUSD while still facing issues with missing funds.
Regulatory Uncertainty
Stablecoins are facing an increasingly uncertain regulatory future as well. A draft bill in the U.S. House of Representatives proposes a two-year ban on algorithmic stablecoins, further complicating the outlook for this segment of the cryptocurrency market.
+ There are no comments
Add yours