Post-LUNA Crash Stablecoin Market Cap Closes in On Its ATH Once Again

In recent weeks, the market capitalization of stablecoins has been soaring. As of September 4, 2024, the time this article was written, the total market cap for stablecoins stands at $169.346 billion, approaching its all-time high. According to Fazzaco's understanding, based on the data from DefiLlama, this peak occurred on April 2, 2022, at $188.343 billion.

Stablecoin Market Isn't Always "Stable"

The total cryptocurrency market cap exceeds $2 trillion, only 10 countries' GDP is higher than that. With millions of cryptocurrencies available, ranging from less than a dollar to tens of thousands of dollars like Bitcoin, stablecoins stand out for their supposed "nature of being stable."

However, their market cap has not always been as stable as their name suggests. On May 9, 2022, an unexpected large sell-off of $84 million in TerraUSD (UST) triggered widespread panic, resulting in the withdrawal of over $100 million worth of UST.

Read More: LUNA Crash - Reasons, Impact and Guesses​

This caused a dramatic $20 billion drop in the stablecoin market cap, plunging to around $160 billion. The situation worsened, and by August 2023, the market cap had fallen below $121 billion before beginning to recover.

USDT: The Dominant Stablecoin

At its peak, Tether (USDT) held a 43.61% share of the stablecoin market. As of the latest data on September 4, 2024, USDT's dominance has increased to 69.73%. This nearly 7 out of 10 share indicates that USDT is crucial for anchoring the entire market.

USDT, also known as Tether, was introduced by Tether Ltd., which, along with Bitfinex, is part of the Hong Kong-based iFinex group. As one of the earliest stablecoins, USDT is closely pegged to the US dollar. Tether Ltd. maintains that for every USDT minted, it retains an equivalent amount in dollar reserves.

The recent record highs in the stablecoin market cap are largely attributed to the growth in USDT's market cap, which has doubled from $82 billion to $117 billion over the past year. Additionally, the second-largest dollar-pegged token, USDC, has also shown significant growth, increasing from a $26 billion market cap a year ago to $34 billion as of September 4.

Market Diversification and the Rise of Other Tokens

Although USDT remains firmly pegged to the dollar, there is no guarantee that its issuer will not face any potential liquidity crunch. With over 70% of the market share held by one token, the overall market instability is actually heightened. Diversification, that means multiple anchors, is essential for market stability.

Beyond USDT and USDC, other tokens like DAI, First Digital USD, PayPal USD, USDD, and TrueUSD also hold noticeable market shares.