Friday, June 10 2022

Anyone who has paid attention to crypto over the past three months knows it has been anything but quiet. There have been jaw-dropping doxes and nine-figure hacks, as the market has lost a staggering $1,000,000 since November.

Meanwhile, stablecoin supply continued to rise despite the crypto market falling 32.2% to $2.08T as of February 16 after hitting an all-time high of $3.07T November 8, according to CoinGecko. Stablecoin supply increased by the same amount, 32.2%, to $176.73 billion from $141.0 billion in those 100 days, according to Data provided by The Block, an information service provider for digital assets.

So what’s going on? The rise in the supply of stablecoins may suggest the simple inevitability of blockchain-based assets, even in the riskier crypto environment we’ve seen over the past three months or so.

“The increased supply of Stablecoin still makes sense because it’s a symbol of a secular increase in belief in digital assets, but not necessarily at risk on those assets under current market conditions,” Jack Melnickwho does research for The Tie, a provider of business information services, told The Defiant.

Stablecoin supply has recovered somewhat since the market peaked. Source: The Block

Troubled dynamics

Melnick finds holding US dollars increasingly difficult to justify given that inflation has hit 9.7% over the past year, according to at the Bureau of Labor Statistics. This means that the purchasing power of consumers – and the value of savings – has fallen sharply.

Additionally, while benchmark interest rates are expected to rise, the interest rate on one-year Treasury bills, known as the risk-free rate, is still just 1.01% as of today. from February 16. This is about a full percentage point lower than the rates offered by the Aave and Compound lending protocols for USDC, USDT, and DAI, which are the top three stablecoins lent under the two projects.

Moreover, the savings rate in the United States is still at 0.06%, according to The bank ratewhich makes even the most common stablecoin rate of 2% quite tempting for US consumers.

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

In a nutshell, it at least seems that while the appetite for risky assets has diminished over the past three months, the thirst for stablecoins has not diminished.

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