Despite the challenges faced by the stablecoin market as a whole, it is the algorithmic stablecoins that have experienced the greatest difficulties. The collapse of the Terra USD, which took place last March, affected the algorithmic stablecoin market more than the entire crypto market.
Algorithmic Stablecoins Suffer Huge Loss
Recent on-chain data shows that the market share of algorithmic stablecoins has significantly decreased. It has experienced a tenfold decline since reaching its peak in April 2022.
CryptoCompare, a blockchain analytics firm, released a recent report which shows that algorithmic stablecoins’ market share is at about 1.71%. As of April 2022, algorithmic stablecoins accounted for 12.4% of the entire cryptocurrency market.
Before the Terra USD crashed, its market share made up 79.8% of the total market share of all algorithmic stablecoins. Its crash increased regulatory scrutiny on stablecoins and stablecoin issuers.
Generally, the overall market for stablecoins has also been performing poorly. January marks the tenth consecutive month in which the capitalization of the stablecoin market has decreased.
CryptoCompare report revealed that the stablecoin market cap is about $137 billion, 12.4% of the entire cryptocurrency market. Last month, centralized exchanges (CEX) experienced a net loss of $3.65 billion worth of stablecoins.
This is the largest amount seen since November 2021. CryptoCompare stated, “it appears that market players are moving away from stablecoins and into riskier assets. This is evident in the recent drop of stablecoin dominance.”
USD Coin (USDC), Binance USD (BUSD), and Tether (USDT) hold the largest shares in the stablecoin ecosystem. Tether has the largest market share (about 48.7%), the highest witnessed since October 2021.
The Stablecoin War Between USDT And USDC
Furthermore, the report highlighted the latest “Stablecoin wars” between USDC and USDT. Last month, Coinbase announced it would allow users to swap USDT for USDC for free.
The announcement sent shockwaves around the crypto community and fueled the battle between these stablecoins. In recent months, many stablecoin users have swapped their USDT for USDC, citing security reasons.
Currently, the trading volume of USDC stablecoin is not up to 1% of the total stablecoins on Coinbase. At the beginning of 2022, the Binance crypto exchange unveiled a BUSD auto-conversion option.
This feature automatically swapped users’ TrueUSD, USDP, and USDC to BUSD on 1:1. Nevertheless, several countries and companies are working on how to use stablecoins for payment.
Last week, Al Kelly, the current CEO of Visa, a payment giant, noted that stablecoins and CBDCs would play a huge role in changing the payment landscape in the future. According to Kelly, Visa has invested money in crypto firms and projects.
The outgoing CEO added that Visa would continue to pursue crypto-enabled and blockchain-powered payment systems.
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