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Stablecoin total market value surged by $3 billion since the beginning of the year, where is the demand coming from?

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Stablecoin total market value surged by $3 billion since the beginning of the year, where is the demand coming from?

Stablecoins have increased by $3 billion in the past six weeks, bringing the total market value close to $9 billion. Some believe that this surge is a result of a large influx of funds into the cryptocurrency market following last month's major drop. However, Coin Metrics founder Nic Carter believes this is not the primary reason.

Stablecoin Total Market Value Approaching 9 Billion

The circulating supply of stablecoins has seen explosive growth since last month. According to Coin Metrics data, the total market value of stablecoins has increased by $3 billion in the past six weeks, nearing $9 billion. Among Ethereum-based stablecoins, Tether (USDT) continues to dominate with a market share of 77.84%. Ethereum-based USDT supply has grown by 113% from $2.3 billion at the beginning of the year to $4.9 billion.

On the other hand, USDC stablecoin continues to lead among non-USDT stablecoins with a market share of 51.44%. Since the beginning of 2020, the weekly trading volume of Ethereum-based stablecoins has exceeded that of Ether (ETH).

Source: Coin Metric

Where Does the Demand for Stablecoins Come From?

Why has there been significant growth in stablecoins during this period and what might their use be? Nic Carter, the founder of Coin Metrics, points out that the main reason could stem from external demand. Emerging market sovereign nations are strengthening control over the US dollar as their fiscal situations continue to deteriorate. Companies are forced to turn to stablecoins for normal financial operations, while retailers are adopting the same approach to hedge against the devaluation of local currencies.

In other words, in the current financial environment, many emerging nations are imposing controls on the US dollar. Additionally, reduced international trade activities and a significant decrease in US demand for oil are leading to a decline in US dollar liquidity. As a result, many investors or businesses in emerging markets are opting to use stablecoins pegged to the US dollar as an alternative for liquidity.

Furthermore, factors such as zero or negative interest rates, recent market volatility, and foreign exchange rate inflation against the US dollar are also driving the demand for stablecoins.

Related Reading

  • What Does Investors Selling Bitcoin and Buying $1 Billion in Stablecoins Signify?
  • Why Are Stablecoins Inevitable Trends in the Crypto and Financial World?

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