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The stablecoin ecosystem is undergoing dynamic change, according to new analysis by on-chain data firm Santiment. Stablecoins, cryptocurrencies designed to maintain a steady value, have faced declining activity and supply in recent months. However, Santiment’s report reveals the key events and strategies shaping the market beneath the surface.
🧐 In part 1 of 'Unraveling the Dynamics of the Stablecoin Marketcap', our insight analyzes the risk-free 3% return that some traders in #crypto are increasingly exploring. Read about the decline in #stablecoin markets, shifts in #DeFi behaviors, and more. https://t.co/SeWzukakrx pic.twitter.com/XoZ2tGnkA3
— Santiment (@santimentfeed) August 30, 2023
Overall stablecoin circulation has trended downward since peaking in May 2022. This decline signals a shift in market activity, driven by several complex factors.
One contributor is the allure of lower-risk investments outside crypto, with Treasuries offering higher yields than many DeFi lending protocols. Some participants are opting for stability over crypto’s volatility.
However, Santiment notes that strategic decisions by major players are also impacting stablecoin markets. Maker governance recently reduced Dai’s savings rate from 8% to 5%, curbing appetite for their stablecoin DAI. The researchers flagged PayPal’s entry into stablecoins as another potentially disruptive move, although its effects remain uncertain.
New entrants like AAVE and Curve have further diversified the ecosystem with stablecoins like GHO and crvUSD. Perhaps the most impactful event was the CRV decentralization drama. Santiment detected massive outflows from AAVE and Compound as participants reacted to perceived risks. Surprisingly, funds did not immediately flow into AAVE v3, despite its security improvements.
This uncertainty translated into APY volatility, with rates fluctuating wildly on both AAVE v2 and v3 as liquidity shifted. Santiment was able to trace most withdrawals to centralized exchanges, or AAVE v3.
In summary, strategic decisions and unanticipated incidents have triggered significant fund redistribution. Dormant stablecoins were unlocked as participants reassessed their options.
Per the report, this paints a picture of an evolving market still finding equilibrium. As stablecoins continue to draw attention from both crypto natives and mainstream giants like PayPal, the community can expect further developments ahead.