USDT and DAI Resilient Against Shrinking Stablecoin Market

With the stablecoin market hitting a two-year low, USDT and DAI have emerged to weather the bearish storm.

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  • The stablecoin market has reached levels last seen in September 2021. 
  • Investors are shifting away from the asset class in favor of better yields. 
  • Despite the bearish sentiment, USDT and DAI continue to grow. 

The stablecoin market has been locked in a persistent downtrend, with September marking its 18th month of decline. While most stablecoins saw their market caps shrinking, two notable exceptions, USDT and DAI, have emerged as beacons of resilience, managing to weather the bearish storm and increase their market share.

USDT and DAI Remain Resilient

According to DefiLlama, the stablecoin market capitalization has been on a consistent decline since peaking in May 2022, just before the collapse of TerraUSD. After 18 consecutive months of closing in the red, the total stablecoin market cap has slid from $186 billion to $120 billion, a level last seen in September 2021. 

The persistent downtrend aligns with investors shifting away from stablecoins in favor of other assets. Market participants now seek better interest rates and yields from traditional assets, such as Treasury bills and bonds, which have consistently outperformed stablecoin yields in most areas of DeFi today.

Stablecoins total market cap chart.
Stablecoins total market cap. Source: DeFiLlama.

Another contributing factor to the stablecoin market’s challenges is the recent hike in US federal interest rates, which has prompted investors to reallocate their capital towards more traditional, robust financial instruments to manage risk.

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Nevertheless, despite the prevailing bearish sentiment, USDT has maintained pole position, holding an impressive 67.2% market share with a market cap of $83 billion. It has maintained consistent growth of 0.4% month-on-month (MoM). Trailing closely behind is DAI, the third-largest stablecoin, boasting a market cap of $5.35 billion and a 5.4% MoM growth rate.

On the Flipside

  • Current US federal rate interest rate sits at 5.25% to 5.5%, the highest since 2007. 
  • Much of DAI’s recent growth is attributed to the Enhanced DAI Savings Rate (DSR) feature; however, it’s unclear how MakerDAO plans to maintain this momentum when it reduces the rate.
  • As part of the EU’s efforts to tighten crypto market regulation, MiCA will prohibit algorithm-based stablecoins in the EU and require a 1:1 liquid reserve for fiat-backed stablecoins.

Why This Matters

Stablecoins play a vital role in the crypto space, serving as the cornerstone for various avenues, including trading, lending, asset management, and more. The asset class makes up 8.5% of the entire crypto market capitalization, a testament to its importance in the space. 

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Read Robert F. Kennedy’s presidential plan for Bitcoin:
Robert F. Kennedy Jr. Pledges to Protect Bitcoin When President

Follow up on how Cardano is performing:
Cardano Struggles to Hold Sway Despite Uptrend, ADA Down 6%

This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed as financial, legal, or tax advice. Trading forex, cryptocurrencies, and CFDs pose a considerable risk of loss.

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Insha Zia

Insha Zia is a senior journalist at DailyCoin covering crypto developments, especially in the Cardano ecosystem. With a Bachelor of Science in Computer Systems Engineering, he delivers high-quality articles with his technical background and expertise in data analysis and programming languages, aiming to educate and inform readers accurately, transparently, and engagingly. Insha believes education can drive mass adoption of the crypto space, and he is committed to giving DailyCoin readers a better understanding of the technology.