Sharp fall recorded in USDC circulation even as stablecoin market heats up

USDC circle

Stablecoins appear to be anything but stable as the market outlook doesn’t look rosy for some stablecoins in the market. The total supply of USDC tokens has declined from 55.06 billion to 45.74 billion, a fall of over 9 billion units worth over $9 billion in the last three months.

Notably, this is the highest fall in circulation for stablecoins recorded in any 90-day period. It also includes $1 billion worth of supply removed from the Tron network in a single day, earlier this month.

The tokens are removed from circulation when holders redeem the coins for the underlying fiat currency. Circle permanently removes the token from the blockchain by sending it to the burn address once they are redeemed by holders.

Many factors are contributing to the spike in the burn rate of USDC tokens and the primary reason is the decline in yield offered by major DeFi platforms to stablecoin lenders. Since the beginning of 2022, the yield for USDC lending on major DeFi platforms like Avalanche and Compound has declined by more than 70%, taking the yield lower than what is offered by the traditional financial market after a series of rate hikes by the US Federal Reserve.

Also, Binance withdrawing support for USDC tokens on its platform and exchanging them with its own BUSD token has adversely affected the circulating supply of USDC.

While the supply of USDC tokens has declined during the period, USDT supply has increased by more than 2 billion units during the same period, pushing Tether’s market dominance to a three-month high of 45.9%.

To put things in perspective, the stablecoin market has heated up in recent months and stablecoin issuers are aggressively expanding to multiple chains to remain relevant in the market. Circle, for instance, has recently unveiled plans to add USDC to five new blockchains, including Arbitrum One, NEAR, Optimism, Cosmos, and Polkadot. The crypto firm also announced the launch of a tool called Cross-Chain Transfer Protocol.

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