According to the latest data from DefiLlama, since the beginning of May, the total trading volume of stablecoins has decreased by almost $38 billion. There is still $148.7 billion left in circulation, most of which is Tether (
USDT
$6.33 billion) and Frax Stablecoin (FRAX) ($1.33 billion).
Meanwhile, revenues from loans and lending of stablecoins on decentralized protocols (DeFi) such as Aave have plummeted. In May, the annual variable rate (APR) on loans from Binance USD, USD Coin and DAI was around 3.5%. Since then, the annual interest rate has fallen to around 1.5%. Meanwhile, the utilization rate, or the percentage of stablecoins borrowed in relation to the total supply, has also dropped to around 30-40%, while optimal protocol levels are around 80%.
Unlike fiat deposits, stablecoin deposits do not automatically earn interest due to their decentralized structure. Instead, users have to put their money at risk by lending it or depositing it into DeFi protocols. The borrowers then put the money into circulation and pay interest to the lenders as a reward. However, the recent increase in interest rates by the US central bank has made the calculation of interest in fiat dollars more competitive, while borrowing has become more expensive. Indirectly, this reduced the demand for borrowing and stable lending in foreign currency.
The collapse of projects such as the algorithmic stablecoin Terra USD has also weakened confidence in the stablecoin sector. In fact, the USTC crash in May accounted for nearly 50% of the $38 billion in stablecoin trading since then. Another stablecoin, Acala USD (aUSD), lost its peg to the dollar in August after using a protocol that accidentally leaked $3.022 billion. Since then, the community has voted to burn the vast majority of “tainted” US dollars, but a small portion of the problematic funds are still missing and have been removed from the protocol. Stablecoins also face an uncertain legislative future, with a bill passed in the US House of Representatives proposing to ban algorithmic stablecoins for two years.
Since then, the community has voted to burn the vast majority of “tainted” US dollars, but a small portion of the problematic funds are still missing and have been removed from the protocol. Stablecoins also face an uncertain legislative future, with a bill passed in the US House of Representatives proposing to ban algorithmic stablecoins for two years.
