USDC is among the largest stablecoins and holds a significant position in the cryptocurrency industry. However, the stablecoin market has witnessed a decline in recent months, with USDC's market cap dropping significantly. In the past few days, the market cap of the second-largest stablecoin has decreased by over $1.4 billion due to a surge in redemptions.
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USDC market cap drops as redemptions reach $1.4B. $1.4 Billion Redeemed In One Week
The stablecoin market experienced a significant decrease in the supply of USDC this week as Circle's token burning rate exceeded the rate of new token creations. As per Circle and Coinmarketcap data, the supply of USDC dropped by $1.4 billion in just seven days, resulting in a drop in market cap from $27.4 billion to $26.9 billion in a week. The overall supply of USDC has been declining steeply since the beginning of this year, dropping from $45 billion to its current level of $26 billion. The worst drop in USDC's market cap this year was during the peak of Silicon Valley Bank's shutdown. USDC market cap drops as redemptions reach $1.4B.
According to Nansen, Circle burned $1.6 billion in USDC in a single day. During this period, Circle’s market cap fell by more than $10 billion. This came as investors rushed to redeem USDC due to Circle having cash reserves in the failed bank.
What Does This Mean For USDC?
The rush to redeem USDC over the course of the past year has prompted doubts about the reserves underpinning the stablecoin. But the stablecoin market appears to be doing just fine 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 monetary equivalents.
Circle, a major player in the cryptocurrency market, recently switched to short-term maturity bonds to hold 80% of its USDC reserve in short-dated US treasuries and 20% in cash deposits within the US banking system. However, this move has caused concern among investors who worry that redemptions at this scale could strain the reserves if they are invested in less liquid assets. As a result, there has been a high volume of redemptions over this time.
Despite the volatile nature of the cryptocurrency market, stablecoins have become a crucial component of the industry due to their ability to offer more stability. Currently, USDT and USDC make up more than 83% of the total stablecoin market cap, with USDT having the higher momentum. While USDC's market cap has slipped throughout the year, data shows that USDT has added over $15 billion to its market cap.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.