Stablecoins Market Cap Continues To Slump – Here’s Why

Stablecoins are cryptocurrencies built to withstand the market’s volatility as it is backed by a specific asset. In the case of most stablecoins, the US dollar backs the cryptocurrency, pegging the coin’s value to one USD.

Investors use stablecoins regularly as a medium of exchange in both decentralized exchanges and centralized exchanges, providing them a quick way to carry out their trading activities. 

However, a recent report by CryptoCompare shows that although investors still recognize the utility of stablecoins, their market capitalization has consistently dropped since hitting its peak back in April of 2022. This shows the market reacting negatively with recent external developments surrounding these asset types. 

A Dash Of Pain And Sweet Developments 

Just last week, Paxos, the issuer of Binance’s BUSD, was hit by charges by the Securities and Exchange Commission with the New York State Department of Financial Services ordering the company to stop the issuance of BUSD. This development deals a massive blow for investors and traders who are using these digital currencies as a means of transacting in the crypto space. 

Going against the United States’ stance on stablecoins, governments around the world have been experimenting with the concept of CBDCs, or central bank digital currencies. These are a type of digital currencies issued by a governing body with the same legality and regulation as traditional fiat currencies. 

However, with some losing dominance in the space, USDT, Tether’s official stable coin, has risen in its dominance in the space. The report shows that its dominance rose from 48.7% to 51.7%, being one of, if not, the most dominant in the space. This most recent change is attributed to the recent regulatory actions against BUSD. 

Decentralized Stablecoins Take The Spotlight – Will They Gain Dominance? 

The decline of stablecoins issued by centralized entities sets the spotlight on these decentralized currencies. CryptoCompare recorded a nearly 1% increase in decentralized stablecoin market cap, a continuance of a three-month long increase. However, the market share of decentralized stablecoins is currently at 6.38%, a long shot since the sector’s all-time high of 18.3%. 

Issuers of decentralized stablecoins also experienced big gains with Curve showing a 36% increase in price. However, this recent event may not last for long as algorithmic stablecoins are facing regulatory scrutiny. With Canada banning algorithmic stablecoins, we might see the market share of decentralized stablecoins fall even more. 

The recent hawkish regulatory actions by government authorities might ramp up this year. However, with governments around the world looking upon stablecoins as a way to digitize fiat currency, stablecoin regulation might come sooner than we think. 

-Image from • 2023