As one of the largest stablecoins, USDC is one of the major players in the cryptocurrency industry. However, stablecoins have seen better days as the stablecoin has seen its market capitalization drop dramatically in recent months.
The second largest stablecoin has seen its market capitalization drop by more than $1.4 billion in recent days, thanks to an increase in redemptions.
$1.4 billion bailed out in one week
The stablecoin market was rocked this week by a massive USDC bailout. According to Circle and data obtained from Coinmarketcap, the supply of USDC decreased by $1.4 billion in just seven days, as Circle’s token burn rate exceeded the token creation rate. This led to a drop in market capitalization from $27.4 billion to $26.9 billion in a 7-day period.
This is because overall USDC supply has declined sharply since the beginning of the year, falling from $45 billion to its current level of $26 billion. The worst drop in USDC market capitalization this year came during the height of the Silicon Valley Bank shutdown.
According to Nansen, Circle burned through $1.6 billion USDC in a single day. During that time, Circle’s market value dropped by more than $10 billion. This came as investors rushed to bail out USDC due to Circle having cash reserves in the failed bank.
What does this mean for the USDC?
The rush to bail out the USDC over the past year has raised questions about the reserves that underpin the stablecoin. But the stablecoin market seems to be doing well in terms of maintaining its peg to the US dollar. Circle also maintains that the USDC cryptocurrency is backed 1:1 by cash and other equivalent currencies.
In March of this year, Circle switched to short-term bonds. This means that the USDC reserve is now held at 80% short-term US Treasuries and 20% cash deposits in the US banking system. Given this, there are concerns among investors that redemptions of this scale could overwhelm reserves if invested in less liquid assets. This would explain the large volume of redemptions in this period.
The cryptocurrency market is known for its volatility, but stablecoins have become a mainstay in the industry due to their ability to offer more stability. Overall, the majority of the stablecoin market remains split between USDT and USDC, accounting for over 83% of the total stablecoin market capitalization.
For now, USDT has the highest momentum. Although USDC’s market capitalization has declined over the year, data shows that USDT has added more than $15 billion to its market capitalization.