Stablecoin Begins to Stabilise after Volatility

Stablecoin Begins to Stabilise after Volatility

The stablecoin market has stabilised since the collapse of TerraUSD, as market participants regained some confidence in the larger coins, Fitch Ratings says in a new dashboard.

The market decreased by 3.6% between May and August 2022, bringing aggregate market capitalisation to USD156 billion amidst selloffs in the crypto assets exchange.

At the end of August 2022, the stablecoin market capitalisation was down by 4% from the financial year end of 2021, despite a deeper fall following the TerraUSD collapse in the month of May.

Market analysts said the TerraUSD collapse led to a 14% fall in total stablecoin capitalisation between April and May 2022 – thus, impacting the size of all crypto assets traded.

In a recent report, Fitch analysts said they expect to see more regulation in a move to add stability and robustness to the market. In 2022 several regulators globally, have made proposals or published white papers on stablecoin and crypto-currencies regulation.

As a result of this volatility, the portfolio of assets used to back stablecoins has become more liquid. The fragile nature of the market was highlighted by a series of events. READ: Tether Launches New Stablecoin

Incidents from cryptocurrency platforms, such as Celsius Platform and Voyager Digital, where trading and withdrawals were suspended, also highlighted the fragile nature of the market. 

In June 2022, the Celsius Platform, a crypto lending company, paused all withdrawals, swaps and transfers between accounts, while Voyager Digital, a publicly traded cryptocurrency platform, started a restructuring process to resume account access and return value to customers.

While volatility has been reduced it is still present, as indicated in the chart showing the prices of Tether (USDT) and of USD Coin (USDC). Some market participants remain bullish. The number of stablecoins increased to 132 at the end of August 2022, a 76% rise from end-1Q22, according to CoinMarketCap data.

Fitch Ratings believes that the entry of many new coins is likely to lead to additional issues and failures of smaller stablecoins.  The market remains concentrated with USDT and USDC accounting for around 77% of total assets at the end of August 2022.

The lack of transparency means that issues arising with smaller stablecoins can spread to the rest of the market, as highlighted in the volatility of the USDT price during the de-pegging of Terra in May 2022. # Stablecoin Begins to Stabilise after Volatility

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