CRYPTOSTAKE
StakingMarketRegulationCryptostake ExplainsUncharted
Investors Are Losing Interest in Stablecoins: CryptoStake Found Out Why

Stablecoins fall victim to the bear market 

The infamous Crypto Winter 2.0 has brought many challenges to the cryptocurrency market, which had appeared so promising before April 2021. Remember when everyone was eyeing Bitcoin (BTC) at $100,000 and posting laser-eyed profile pictures on social media? Sadly, the market took a different turn. 

 Now, while the bears still dominate, troubling signals from the realm of stablecoins are growing louder. According to a report published by the crypto analytics platform CCData, the capitalization and market dominance of most top stablecoins, excluding USD Tether (USDT), have seen a decline of 11.6% over the past 18 months. So, what is exodus in the stablecoin sphere all about? CryptoStake investigates the reasons and the prospects of investors losing trust in non-volatile cryptocurrencies.    

Treasury bonds are luring investors away from the crypto market

 The CCData report reveals that the market capitalization of USD Coin (USDC), Binance USD (BUSD), and Pax Dollar (USDP) has been continuously declining since September 2022, while USDT has exhibited positive dynamics. There was a 10.9% spike in trading volume at the beginning of 2023, mainly attributed to the Bitcoin ETF saga, but it gradually receded, falling below $20 billion in September. This is a real exodus stablecoin market has never seen before, even during the first major bear market of 2018-2020.   

Source: CCData

We at CryptoStake see it as a sign that investors are offloading their stablecoins in favor of 'juicier' assets, which at that time seem to be the US 10-year Treasury Bonds. This particular type of low-risk asset has grown increasingly attractive to profit-seekers since the Federal Reserve began hiking interest rates to curb the inflation that was ravaging across the post-COVID economies. As a result, the yield on the bonds soared from 0.4% to 4,25%, thus making risky assets like crypto far less appealing. 

Investors are like fish out of water in that regard, abandoning stablecoins for US Treasury Bonds as they seek safety and better yields in a more familiar and stable environment. Initially, the adoption of stablecoins served as a convenient entry point for those interested in cryptocurrency, allowing access to more advanced services within the digital economy. But when the push came to shove, the migration from stablecoins to safer havens like US Treasury Bonds signaled a shift in priorities for many investors. Therefore, the exodus coin market is experiencing now underscores a significant change in investors' priorities.

A big dent in reliability, but PYUSD may save the day 

The reliability of stablecoins as a means for capital preservation and multiplication remains an issue among investors. The crash of Terra Luna, which wiped out $50 billion in capitalization of its algorithmic stablecoin UST, had a devastating effect on the cryptocurrency market and investors' trust. Numerous concerns regarding USDT, such as transparency, regulatory scrutiny, and the potential for market instability, have contributed to the exodus the stablecoin market is currently witnessing.

However, the salvation for the stablecoin market may come in the face of PayPal USD (PYUSD), an Ethereum-based stablecoin unveiled by global payments giant PayPal in August. Issued by Paxos, this U.S. dollar-pegged stablecoin is reportedly fully supported by major U.S. financial institutions. Despite concerns over its centralized nature, it has the potential to boost investor confidence, draw new users to the crypto space, and finally reverse the current market dynamics.

CryptoStake's take on the matter

As investors explore safer options amid market volatility, the demand for stablecoin staking may evolve, potentially impacting yields. To navigate these changes, CryptoStake remains dedicated to providing attractive crypto rewards in Ethereum (ETH), Polkadot (DOT), Cosmos (ATOM), and to-be-added PoS coins, while ensuring the safety of funds throughout the ongoing stablecoin exodus. This commitment reflects our confidence in adapting to dynamic market conditions while offering robust staking opportunities.