Ethereum, China, and How They Contributed to Tether’s Flattened Supply

Every sector within the digital asset industry saw significant growth in 2021. This included the developments at DeFi, the new ATH levels of Bitcoin and the growth of existing projects such as Cardano and Binance Coin. Similarly, the total supply of stablecoins also increased four-fold, with USDT at the top.

While Tether dominated more than 50% of the total supply, USDC’s supply rose from 4 billion to 26 billion in 2021. Surprisingly, 75% of that increase came after May 11th. Unfortunately, after the May crash, the dynamics have obviously changed.

This article takes a closer look at the new inconsistencies that have been discovered over the past few weeks.

The tether offer has flattened since May 30th

Source: Skew

Since the date mentioned above, Tether’s market cap has grown by roughly $ 62 billion. Apparently, for the first time since March 2020, such a long stagnation has occurred. According to CoinMetrics, it could also be due to the falling free float supply.

Free float is defined as the supply that excludes supply that is considered illiquid. Now, the decline in Tether’s free float could indicate that users are selling their USDT and sending it back to Tether’s reserves. Therefore, the total supply has not increased, possibly due to a lack of demand. The aforementioned report added,

“This decrease in free float was particularly noticeable with Ethereum – the free float supply of tether issued on Ethereum (USDT_ETH) has decreased by approximately 1 billion in the last 30 days, while the total supply has remained unchanged.”

One of the reasons for Tether’s lesser interest could be its reliance on the Asian market. According to the data, Tether recorded most of its activity during Asian business hours. The recent exodus of miners and investors from China could affect Tether’s operations in Asia.

Part of the lesser utility of USDT may also be due to the fact that Ethereum is used extensively as DeFi security. This reduces the ETH_USDT free float offer. The popularity of USDT distribution was mostly evident in centralized exchanges where investors would prefer their settlement infrastructure. Switching to the DeFi ecosystem, however, is a whole different ball game.

USDC one-time

Now USDC can meet the increasing demand as most of its activities tend to follow US market times. Western markets hardly rely on USDT pairs as their focus on USD pairs has always been higher. Coinbase also supports USDC. And it’s the only publicly traded company in the digital asset industry right now.

It is therefore not surprising that the USDC gained momentum after the May crash. This, coupled with China’s mining “ban” and the investor mystery, was a perfect storm.

USDT is still ahead of the game

A previous article had discussed the dominant position of the USDT over the liquidity brought forward in the market. Similarly, the stablecoin is also in command of cash settled futures. Crypto-USDT paired futures currently allow more trading volume than crypto-backed futures.

USDC has yet to leave its mark in this sector as USDT continues its expansion. While futures backed by USDT may not necessarily trigger an increase in overall supply, it underscores the fact that USDT still has great utility across the crypto industry.

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