Why USDT Holds a 70% Share in the Stablecoin Market?

Stablecoins are essential for the crypto ecosystem. Generally pegged to a fiat currency, these tokens are minted on the blockchain, and an external entity backs the tokens in the amount of said fiat. One of the most popular stablecoins is Tether, whose token is USDT.

Tether is backed by a large reserve of USD held as cash or its equivalent and is hence one of the stablecoins known as fiat-backed.

There are many other stablecoins, with USD Coin and Dai taking most of the shine. The latter is underlined by USDC and others, like Ethereum and Bitcoin , which marks DAI as a crypto-collateralized coin.

Stablecoins help protect against volatility. This gives holders a way out to sell their crypto and convert to stables, thus offering crucial liquidity. The value of the stable tokens is not likely to change despite large waves of selling.

Looking at the market share of stable coins compared to the rest of the crypto ecosystem, they were at 8.42% of the total market capitalization. This works out to be $156 billion.

Source: IntoTheBlock

Stablecoins market capitalization was growing from the bear market all through 2022, but the high of $188 billion in all-time was reached in April 2022. With most likely disillusioned participants of the cryptosphere moving back to traditional assets and exiting the market, this has seen the market cap decrease in the bear market of 2022.

Source: IntoTheBlock

Crypto regulations also play a big role. The firm mints Binance USD (BUSD), which is the USD-pegged stablecoin that has been launched by Binance and Paxos.

In November 2023, the NYDFS ordered Paxos to stop minting the token, which led to the token taking a fall and promptly losing what little market traction it ever had.

The Tether market cap share lies at 70.04%. Coming in close is USDC at 21.36% of the stable token market capitalization, with DAI making 3.28% of the share. This clearly shows the evident preference of the market for USDT.

Source: IntoTheBlock

They are much longer in the market and have lived through several FUD waves. Their asset reserve is transparent and adds a lot of confidence.

Gauging sentiment from stablecoin exchange netflow

The stablecoins' market capitalization trended higher, nearly ever since October 2023, as prices of Bitcoin and other cryptomarkets soared higher. This reflected an increase in buying power in the market and really signaled a positive note.

Source: IntoTheBlock

On the other hand, since October 2023, the exchange netflow of stablecoins has been negative. It now indicates the current trend for about 13 of the last 18 months, which is a decrease in buying pressure.

In general, it is possible to say that the market sentiment was negative in this chart. However, the only big inflows of stables were in January and May 2022. So, while this inference of selling pressure—lowered trade activity and negative sentiment from the netflow—this is only a strand in a very complex web, and therefore doesn't reflect the whole.