The total market value of dollar-pegged stablecoins rose to $165.2 bln on April 19, a level last seen in June 2022. Meanwhile, the all-time high stands at $179.4 bln (April 2022). Why is the capitalization of stablecoins growing? Why can’t it break out of the two-year high. And what’s preventing this from happening?
The rising capitalization of US dollar-pegged stablecoins is attributable to several key factors. First, the popularity and acceptance of stablecoins as a store of value, settlement and cross-border payments in the cryptocurrency space is increasing. The more widely they are used, the greater the demand for them and the corresponding increase in issuance.
Secondly, there is increased competition between different stablecoin projects. The emergence of new players is forcing existing issuers to increase the production of tokens to maintain market shares.
However, the main driver for the issuance of stablecoins is actual demand from investors and companies. The massive sale of cryptocurrencies and the transfer of funds into stablecoins for saving in dollar equivalent within the crypto market caused an increase in issuance. Also, additional demand is created by using stablecoins instead of fiat for payments and transfers via the blockchain.
It should be remembered that most stablecoins are fully backed by reserves of real assets, such as dollars, treasury bonds, etc. Issuers are required to top up these reserves accordingly when the supply of their tokens increases in order to maintain market confidence.
Thus, the capitalization of stablecoins is growing to meet the increased demand for them from the crypto market, businesses and private investors using them for various purposes within this ecosystem.