USDC: Turbulent journey of the stablecoin continues with recovery at bay
- USDC tokens in circulation hav plunged 37% since SVB fiasco in March.
- Transaction volume was yet to show any substantial indications of recovery.
As ironic as it may sound, the journey of stablecoin USD Coin [USDC] in 2023 has been rather tumultuous. Since the Silicon Valley Bank (SVB) fiasco in early March, the USD-backed crypto has witnessed a consistent fall in trading volume and circulating supply, according to on-chain research firm IntoTheBlock.
Transaction volume sank to a two-year low barely a month after the crisis. And it was yet to see any substantial indications of recovery. In the tweet dated 29 July, IntoTheBlock added that USDC tokens in circulation plunged 37% since the incident.
USDC’s plunge into misery
The second-largest stablecoin with a market cap of more than $26 billion, USDC has been a subject of extensive coverage in 2o23, primarily for negative reasons.
USDC was at the center of the biggest depegging of 2023 thus far when the coin which is supposed to hold on to its dollar peg, plunged to a discount of $0.9683.
The deviation was precipitated by issuer Circle’s disclosure that more than 8% of the reserves backing the stablecoin were trapped in the failed Silicon Valley Bank. The event caused mayhem in the market, causing a dent in investors’ portfolios.
The depegging triggered a domino effect, with algorithmic stablecoin DAI, whose majority collateral reserves were held in USDC, also climbing down below $1.
Redemptions outpace issuance
In principle, if a user wishes to buy USDC coins, they need to deposit an equivalent amount of USD. This process leads to the minting of new tokens which come into circulation. Conversely, USDC’s are burned when users redeem their tokens for their fiat currency.
Since the depegging fiasco, USDC redemptions have outpaced issuances, per data from Dune, with a net burn count of over 16 billion tokens on the Ethereum [ETH] chain. This was reflective of dwindling demand for the stablecoin.
Market gets heated up
The stablecoin landscape has witnessed a sea of change since the episodes of March. While Tether [USDT] steadily scooped up USDC’s market to consolidate its position, Binance- backed TrueUSD [TUSD] emerged as the new player on horizon.
Moreover, the recent launch of First Digital USD [FDUSD] has also heated up the market. The continuing negativity coupled with growing competition could make things just a bit difficult for USDC to turn things around.