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- 1 Major stablecoins saw noticeable redemptions causing the shrink.
- 2 Overall crypto economy increased by 41.77%.
So far in 2023, the overall crypto economy gained 41.77%, but the stablecoin economy shrunk by $7.3 Billion. The current market cap for cryptocurrencies is around $1.222 Trillion, which was around $817 Billion on January 6, 2023. In comparison, the stablecoin market cap dropped from $138.12 Billion to $130.79 Billion in the same time frame.
Stablecoin Economy Shrinking – Raising Concern
2022 was dotted with harsh crypto winter, multiple bankruptcies, and a black swan event of FTX collapse. Billions of dollars vanished, and the prices of almost every cryptocurrency were down considerably. But since the start of 2023, Bitcoin surged nearly 87% reaching close to $31,000 and is currently around 18% down from the point and trading at $26,834.43.
However, stablecoins share a different growth pattern, as market-leading stablecoins suffered many redemptions. For instance, USDCoin suffered a reclamation of $14 Billion, BUSD $11 Billion, and MakerDAO’s DAI was worth $361 Million.
The stablecoins story is not sad throughout; some of them managed to offset the losses. USDT reported a growth rate of 24.5%, with its market cap in January’s first week being $66.29 Billion, recently found to be $82.95 Billion. Similarly, TUSD grew by 141% from $846.57 Million to $2.04 Billion.
Moreover, this scenario of the dipping stablecoin market cap highlights the unpredictable landscape of the ever-changing cryptocurrency ecosystem. Ironically it paints a picture that stablecoins’ economy is itself unstable in the industry.
The overall trading volumes of stablecoins reveal that on January 6, 2023, the stablecoin economy reported a trading volume of $27.11 Billion. However, this figure noticeably dipped to $10.77 Billion on May 21, 2023.
Even though this dip seems significant, the stablecoin trade still makes up around 57.9% of the total trading volume of the entire crypto industry. The $27.11 Billion volume of the dollar-pegged tokens amounted to 81.36% of the then-global trade volume.
Interestingly, in 2023, the stablecoin economy reinforces the demographics of the volatile crypto ecosystem. Countries with weaker economies rapidly indulge in this realm to have a U.S. dollar equivalent in their wallets. As the relatively new crypto market evolves, stablecoins offer the required stability like an island among the raging waves of volatility.
Stablecoins; A Solace in Volatility
Theoretically, stablecoins are cryptocurrencies made to adjust their value concerning major fiat currencies like the U.S. dollar, Euro, and the British Pound. They behave similarly to standard cryptocurrency but avoid high volatility and associated price swings.
The term “stablecoin” provides a clear message of stability in the unstable world of cryptocurrency. Reputed stablecoins are often backed by fiat or some crypto reserve, and they usually fulfill their purpose just fine.
Even the United States Securities and Exchange Commission’s chair Gary Gensler stated that stablecoins reduce the risks in the industry. He also argued that they should be treated with a similar regulatory framework as money market funds.
Nancy J. Allen is a crypto enthusiast, with a major in macroeconomics and minor in business statistics. She believes that cryptocurrencies inspire people to be their own banks, and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning. She frequently researches, and posts content on the top altcoins, their theoretical working principles and technical price predictions.
