Stablecoins represent a crucial share of the broader cryptocurrency industry. However, 2022 made it apparent demand for these pegged currencies can diminish quickly. All major assets lost market share on Ethereum, despite noting strong transaction volume in H2 2022.
Stablecoins on Ethereum Lose Momentum
It hasn’t been a great year for stablecoins on the Ethereum blockchain. The collapse of TerraUSD (UST) cast a dark spotlight on the industry. Moreover, the bankruptcy of various crypto lenders and the FTX exchange has reduced trust even further. Despite stablecoins maintaining a peg to fiat currency, they aren’t all equal. Several of these currencies can lose their peg (temporarily), regardless of who issues them.
That said, the overall interest in crypto trading took a hit throughout 2022. With less trust in digital assets and ongoing financial concerns, demand for stablecoins waned. In January, USDT ($40 bn), USDC ($38.1 bn), and BUSD ($14.4 bn) were the market leaders. DAI ($9 bn) was trying to catch up, and Magic Internet Money had a market cap of over $4.6 billion. All pegged assets combined for a market cap of roughly $115 billion.
However, that momentum waned quickly throughout 2022. All stablecoins suffered setbacks in demand, reducing their supply and market cap. By December 30, 2022, USDT lost its top position ($32.5 bn) to USDC ($41.4 bn). BUSD has strengthened its market position as the third-biggest pegged asset at $16.7 billion. However, DAI‘s cap dropped to $5.1 billion, and Magic Internet Money went to $686.3 million. A steep overall decrease in demand for these assets and other stablecoins.
It is interesting to see how USDC gained a better market share last year. It went from a 34.4% market cap share to over 41%, despite overall demand reducing. Tether’s USDT lost the crown, from 36.3% to 32.7%. Ethereum users prefer USD Coin over Tether, although these rankings will change over time. However, the lack of competition beyond these two assets remains a problem.
Solid Transaction Volume In H2 2022
Despite the decreasing demand for pegged assets, stablecoins on Ethereum had a substantial transaction volume last year. More specifically, they suffered some setbacks in H1 2022 despite strong performance in January and May. Things really picked up in the second half of the year. The monthly volume surpassed $600 billion for four months before dipping to $531 billion in October. It then shot up to $945 billion in November, setting an all-time high.
Although 2022 ended on a “low” of $647 billion, it was an overall successful year for pegged assets. Setting a new all-time high for monthly volume is significant, and many people expected the crypto market to turn bullish again. That did not happen in 2022, although things look a bit better in early 2023. The volume of all stablecoins has surpassed $224 billion on Ethereum this month. It seems unlikely that it will yield a new ATH, although the overall trend seems bullish.
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