Stablecoin supply saw the largest quarterly contraction in history in Q2
The downturn was triggered by the collapse of TerraUSD in May, which paved the way for market share growth of fiat-backed stablecoins.
Total stablecoin supply contracted to $151.3 billion in the second quarter of 2022, a drop of 18.8% or $35.1 billion over Q1, according to a report by Arcane Research.
This is the largest quarterly drop in supply in the history of stablecoins, the report states.
However, the research, which studied the 13 largest stablecoins, showed that stablecoin supply steadily increased in the first four months of 2022. But the 50% annualized growth rate between January and April was slower than the 500% annualized growth in the last five months of 2021, the report stated.
It was the collapse of TerraUSD (UST), which wiped off $18 billion from the stablecoin market in weeks, that triggered the reduction in stablecoin supply, according to the report.
Between May 16 and July 1, the total stablecoin supply dropped by 5.4%, or 35.8% annualized. Arcane Research said this is the first time they have seen sustained negative supply growth.
The supply of Tether (USDT), the largest stablecoin by market cap, dropped by over 15% as its market cap fell from $78.4 billion to $66.3 billion in H1 2022, the report stated.
Arcane Research said the fall in USDT supply can be attributed to the Terra collapse in May which caused USDT to lose its dollar peg. Moreover, Tether saw increasing redemption requests as the market grew weary of stablecoins in the aftermath of Terra.
If the supply growth continues at the same pace, USDCoin (USDC) would dethrone USDT as the largest stablecoin on October 10, the report stated.
Additionally, the research stated that the market cap of algorithmic stablecoins plummeted by 77.4% from $13.3 billion to $3 billion in H1 2022. The collapse of USTC, which evaporated $9.7 billion was responsible for around 94.2% of the market cap contraction, the report said.
This caused the market dominance of algorithmic stablecoins to drop from 8% to 2% in H1 2022, the report stated. This in turn paved the way for an 11.9% increase in the market share of fiat-backed stablecoins, led by USDC and BinanceUSD (BUSD), Arcane Research said.