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As one of the largest stable coins, USDC is one of the major players in the crypto industry. However, stablecoins have seen better days, as the market cap of stablecoins has seen a significant decline over the past few months.
The market capitalization of the second largest stablecoin has seen a drop of over $1.4 billion due to an increase in redemptions over the past few days.
$1.4 billion redeemed in one week
The stablecoin market was stirred this week by a massive discounting of USDC. According to data obtained from Circle and Coinmarketcap, the supply of USDC was reduced by $1.4 billion in just seven days as Circle’s token burn rate exceeded the rate of new token creation. This reduced the market cap from $27.4 billion to $26.9 billion in a 7-day time frame.
This happened because the total supply of USDC has been on a steep decline since the beginning of the year, falling from $45 billion to the current level of $26 billion. The worst drop in USDC’s market cap this year came during the Silicon Valley bank shutdown.
USDC market cap plunges | Source: Glassnode
According to Nansen, Circle lost $1.6 billion in USDC in a single day. During this period the market cap of the circle fell by more than $ 10 billion. This happened as investors rushed to cash in USDC due to cash reserves held at the failed Bank of the Circle.
What does this mean for USDC?
The rush to redeem USDC over the past year has raised doubts about the reserves backing the stablecoin. But the stablecoin market is doing well to hold its ground against the US Dollar. Circle also says that the USDC cryptocurrency is backed 1:1 by cash and other monetary equivalents.
USDC market cap sitting at $27.25 billion | Source: Market Cap USDC on Tradingview.com
In March this year, Circle switched to short-term maturity bonds. This means that USDC reserves are now 80% held in short-term US Treasuries and 20% in cash deposits within the US banking system. In view of this, there are concerns among investors as redemptions on this scale may put pressure on reserves if invested in less liquid assets. This would explain the high volume of redemptions during this time.
The cryptocurrency market is known for its volatility, but stablecoins have become one of the backbones of the industry because of their ability to provide more stability. Overall, the majority of the stablecoin market remains split between USDT and USDC, which make up over 83% of the total stablecoin market capitalization.
For now, the momentum for USDT is high. While USDC’s market cap has dropped throughout the year, data shows that USDT has added over $15 billion to its market cap.
Featured Image from Cryptonomist, Chart from Tradingview.com
