Stablecoin Supply's Steady Rise Shows 'Increased Belief' in Digital Assets Despite Market Rout

Stablecoin supply has steadily increased during the crypto market rout.

By: Owen Fernau Loading...

Stablecoin Supply's Steady Rise Shows 'Increased Belief' in Digital Assets Despite Market Rout

Anyone paying attention to crypto in the last three months knows it has been anything but calm. There’s been jaw-dropping doxes and nine-figure hacks, all while the market has lost a staggering $1T in value since November.

At the same time, the supply of stablecoin has continued to increase despite the crypto market plummeting 32.2% to $2.08T as of Feb. 16 after hitting an all-time high of $3.07T on Nov. 8, according to CoinGecko. Stablecoin supply has increased the same amount, 32.2%, to $176.73B from $141.0B during those 100 days, according to data provided by The Block, an information services provider for digital assets.

So what’s going on? The uptick in stablecoin supply may suggest the simple inevitability of blockchain-based assets, even in the more risk-off environment in crypto that we’ve seen for the past three months or so.

“Stablecoin supply increasing still makes sense because it’s a symbol of secular increase in belief in digital assets, but not necessarily being risk-on those assets in current market conditions,” Jack Melnick, who does research for The Tie, an information services provider for businesses, told The Defiant.

Stablecoin supply has picked up somewhat since the market topped. Source: The Block

Murky Dynamic

Melnick sees holding U.S. dollars as increasingly hard to justify considering inflation hit 9.7% over the last year, according to the Bureau of Labor Statistics. That means consumer purchasing power — and the value of savings — fell sharply.

Plus while benchmark interest rates are expected to increase, the interest rate on the one-year Treasury bill, known as the risk-free rate, is still only 1.01% as of Feb. 16. That’s about a percentage point lower than the rates offered by lending protocols Aave and Compound for USDC, USDT, and DAI, which are the top three stablecoins lent through both projects.

Moreover, savings rates in the U.S. are still at 0.06%, according to Bankrate, making even stablecoins’ most run-of-the-mill rate of 2% look pretty tempting to American consumers.

Overall, stablecoins’ increasing supply is a murky dynamic, and one not entirely driven by demand, institutional or otherwise. In November, shortly after the crypto peak, Terra governance voted to burn 88.86M LUNA tokens, worth over $3.5B at the time, exchanging them for UST, the project’s algorithmic stablecoin.

In a nutshell, it at least appears that while appetite for risk-on assets has decreased in the past three months-plus the hunger for stablecoins hasn’t decreased.