Stablecoin Demand Soars in Response to Bitcoin Volatility

Stablecoins benefited from Thursday's market crash. Hundreds of millions entered USDT as Bitcoin's price volatility increased.


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Dollar-backed stablecoins are thriving in response to Thursday’s market crash. Tether’s USDT surpassed a market cap of $5 billion.

Over $500 Million Minted

Tether’s transparency page currently indicates that USDT has a market cap of $5.12 billion. Based on reports from Whale Alert, it appears that Tether minted over $500 million of USDT in the days leading up to Mar. 12. Tether also minted another $115 million of USDT in the days that followed.

It seems that most market aggregators have not taken these changes into account. CoinMarketCap, for example, reports that Tether has a market cap of $4.6 billion, and its charts give no indication that Tether’s overall supply or market cap has changed over the past week.

Furthermore, official and unofficial numbers both exclude Tether’s Yuan-backed, Euro-backed, and gold-backed stablecoins, which collectively represent over $70 million worth of assets.

Tether Controversy Remains Heated

Unlike Bitcoin, USDT can be readily minted as long as Tether has enough collateral to do so.

This means that Tether creates and destroys USDT tokens in order to adjust its supply, a procedure which in turn maintains parity with the U.S. dollar. This makes it hard to say whether Tether’s decision to mint a large number of new tokens is actually grounded in real investor demand.

Furthermore, some critics are dissatisfied with Tether’s auditing practices and question whether it truly has sufficient collateral. Others argue that Tether is used in wash trading and market manipulation.

In Tether’s defense, its stablecoin has successfully given crypto investors a way to avoid price volatility. USDT has maintained its $1.00 price peg for several years, and this week’s crash was no exception.

Stablecoins Are Thriving

Other stablecoins are also thriving despite the market crash.

Circle CEO Jeremy Allaire has noted that the firm’s USDC stablecoin is experiencing increased demand and that its circulating supply has grown to $568 million. Much like Tether, USDC is backed by a central group called CENTRE, which has recently burned and minted several USDC tokens.

Meanwhile, Binance CEO Changpeng Zhao reports that its stablecoin, Binance USD, which was introduced last September, has reached a market cap of $132 million, making it the fourth largest stablecoin.

Though, not all is well among stablecoins. MakerDAO took emergency measures to protect Dai, its Ethereum and ERC-20 backed stablecoin, from Thursday’s crash. Maker is now auctioning governance tokens (MKR) as a further response. Because Dai is backed and governed by individual coinholders, coins cannot be minted or burned unilaterally. Decisions are made by consensus.

It remains to be seen whether the cryptocurrency market will experience further decline, and whether demand for stablecoins will again increase among investors if that happens.

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