Ten Times Fall for Algorithmic Stablecoins Since Their All Time High
Times are very tough for the stablecoin market in general, but algorithmic stablecoins have suffered the brunt. The Terra USD [UST] collapse caused much pain in the general crypto market with algorithmic stables being the worst hit.
[Note: The total stablecoins market dominance is currently recorded at 12.4% falling from its all time high of 16.5% in December. This drop suggests that the participants within the market are rotating out of stablecoins and taking on risk. For the tenth consecutive month, total capitalization in January fell to $137 Billion (0.62%) which is the lowest market capitalization recorded since September 2021. December 2022 witnessed a $3.65 Billion net outflow from the stablecoin market which is the largest outflow since November 2021.]
The all time high market share for algorithmic stablecoins was recorded in April, 2022 at 12.4% of the total cryptocurrency market. Now, according to a report from CryptoCompare the current market share for algorithmic stablecoins is reported at 1.71% of the total cryptocurrency market. Hence, since its ATH, the algorithmic stablecoin market share dropped nearly tenfold.
Even following the Terra USD debacle, the algorithmic stablecoin market is still reeling. Recently the developers have announced the shutdown of Waves’ Neutrino USD (USDN) [See, Nagoda, K. A Regulator Warning and Possible Exchange Delisting Further Sinks USDN. (Accessed January 27, 2023)]. You might remember, despite having a market capitalization of $20.7 Million, Neutrino has failed to regain peg being off parity in excess of five months.
Additionally, there is Vader Protocol’s USDV. After the Terra collapse, Vader has paused the minting operations of USDV. This algorithmic stablecoin has spent approximately the past six months search for a more sustainable and capital-efficient coin design. This search, however, has been fruitless to date.
Stablecoins USDT, USDC, BUSD, DAI, FRAX, TUSD, USDP, USDD, GUSD, and USTC remain the top stablecoins pursuant to the CryptoCompare report. It should be noted that this month (January, 2023), only USDC, BUSD, and GUSD recorded drops in their market capitalization. Nonetheless, the market capitalization of Tether (USDT) advanced to $66.7 Billion (0.82%). Tether likewise increased its market share to 48.7% which is its highest dominance recorded since October, 2021.
Of interest, the CryptoCompare report also touches upon the 'Second Great Stablecoin War' (Stablecoin Wars 2.0). This report notes that the latest turn of events in the War was the December 2022 announcement by Coinbase which disclosed Coinbase's new program to swap USDT to USDC with zero fees. Coinbase, in partnership with Circle, stresses that stability and trust are the main drivers for USDC support. (USDC currently comprises less than 1% of the stablecoin trading on Coinbase.
Prior to this and earlier in 2022, Binance introduced its auto-conversion program. This program forced holders of USDC, USDP, and TUSD into having their stablecoins converted to BUSD (as of a conversion date) if those three coins remained on Binance. Binance reasoned that this forced conversion of USDC, USDP and TUSD to BUSD on a 1:1 basis would enhance both liquidity and capital efficiency.
Finally, for the past three months (November 2022 through January 2023) there has been a net outflow of stablecoins from Centralized Exchanges.
In December 2022, the highest net outflow of stablecoins from Centralized Exchanges was recorded since November 2021. A major contributor to this outflow in December was the Binance solvency rumors. Net outflows for all CEX's in December, 2022 totaled $3.65 Billion. The January, 2023 data showing a net outflow of $1.17 Billion as of January 22, 2023 suggests this trend of market participants moving their stablecoin assets off CEX's most likely will continue.
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