As one of the prominent stablecoins in the cryptocurrency industry, USDC has experienced a significant drop in market cap in recent months. Redemptions have surged, causing the stablecoin’s market cap to plummet by over $1.4 billion in just a few days. This decline raises concerns about the reserves backing USDC and its ability to maintain its peg to the US dollar. Meanwhile, rival stablecoin USDT has been gaining momentum, steadily increasing its market cap.
Market Cap Decline and Massive Redemptions:
USDC’s market cap has witnessed a drastic decrease, with a recent $1.4 billion drop attributed to a surge in redemptions. Circle, the company behind USDC, reported a higher rate of token burning compared to the creation of new tokens, leading to a seven-day decline from $27.4 billion to $26.9 billion.
Yearly Market Cap Plunge and Bank Closure Fallout:
The overall supply of USDC has been steadily declining since the beginning of the year, plummeting from $45 billion to the current level of $26 billion. The most significant drop occurred during the Silicon Valley Bank’s shutdown, where Circle burned $1.6 billion in USDC in a single day, causing a market cap decline of over $10 billion. Investors rushed to redeem USDC due to concerns over Circle’s cash reserves held in the failed bank.
Reserve Composition and Investor Worries:
Circle maintains that USDC is backed 1:1 by cash and other monetary equivalents. However, concerns have been raised regarding the reserves supporting the stablecoin. Circle switched to holding short-term maturity bonds, allocating 80% of the reserve to short-dated US treasuries and 20% to cash deposits within the US banking system. The surge in redemptions has raised worries about the reserves, particularly if they are invested in less liquid assets.
Stablecoins’ Importance and USDT’s Momentum:
Stablecoins have become a crucial component of the cryptocurrency market due to their ability to offer stability. USDT and USDC dominate the stablecoin market, accounting for over 83% of the total stablecoin market cap. While USDC’s market cap has experienced a decline throughout the year, USDT has added over $15 billion to its market cap, indicating higher momentum and popularity among investors.
USDC’s market cap has suffered a significant setback as redemptions surged, leading to a decline in the stablecoin’s supply. Questions have emerged regarding the reserves backing USDC, although Circle maintains that it is backed 1:1 by cash and other monetary equivalents. USDT, another major stablecoin, has been experiencing growth in its market cap. The stablecoin market remains crucial in providing stability within the volatile cryptocurrency industry, with USDC and USDT playing a dominant role.