As one of the biggest stablecoins, USDC is one of the major players in the crypto industry. However, the stablecoins have seen better days, as the stablecoin has seen its market cap drop drastically over the past few months.
The second-largest stablecoin has seen its market cap drop by over $1.4 billion in just the last few days thanks to a surge in redemptions.
$1.4 Billion Redeemed In One Week
The stablecoin market was rocked this week by a massive redemption of USDC. According to Circle and data obtained from Coinmarketcap, the supply of USDC decreased by $1.4 billion in just seven days as Circle’s rate of token burning outnumbered the rate of new token creations. This led to a market cap drop from $27.4 billion to $26.9 billion in a 7-day timeframe.
This comes as the overall supply of USDC has been on a steep decline since the beginning of the year, plummeting from $45 billion to its present level of $26 billion. The worst drop in USDC’s market cap this year came during the height of Silicon Valley Bank’s shutdown.
According to Nansen, Circle burned $1.6 billion in USDC in a single day. During this period, Circle’s market cap fell by more than $10 billion. This came as investors rushed to redeem USDC due to Circle having cash reserves in the failed bank.
What Does This Mean For USDC?
The rush to redeem USDC over the course of the past year has prompted doubts about the reserves underpinning the stablecoin. But the stablecoin market appears to be doing just fine in terms of maintaining its peg to the US dollar. Circle also maintains that the USDC cryptocurrency is backed 1:1 by cash and other monetary equivalents.
In March of this year, Circle switched to short-term maturity bonds. This means that the USDC reserve is now held 80% in short-dated US treasuries and 20% in cash deposits within the US banking system. Given this, there are worries among investors as redemptions at this scale could strain the reserves if they’re invested in less liquid assets. This would explain the high volume of redemptions over this time.
The cryptocurrency market is known for its volatility, but stablecoins have become one of the backbones of the industry due to their ability to offer more stability. Overall, most of the stablecoin market remains split between USDT and USDC, making up more than 83% of the total stablecoin market cap.
For now, USDT has the higher momentum. While USDC’s market cap has slipped throughout the year, data shows USDT has added over $15 billion to its market cap.