The crypto space thrives on narratives. From protocol upgrades and meme coins to recurring themes like the halving, each wave of interest brings renewed attention. Among these, the evolution of decentralized finance (DeFi) deserves a closer look.
With the third anniversary of the 2020 “DeFi Summer” behind us, several DeFi projects are showcasing compelling new developments. Additionally, the stablecoin market has undergone significant structural shifts in the first half of the year, with notable changes in both total supply and composition.
The Changing Stablecoin Market
Crypto remains a relatively small and semi-closed market. Its cycles of growth and decline are closely tied to changes in the supply of USD-denominated stablecoins. Recent months have shown clear shifts in both the total amount and structure of these assets.
Beginning in late February, influenced by broader market conditions and the subsequent Silicon Valley Bank incident, the total supply of stablecoins started a downward trend. Over about four and a half months, the market cap decreased by approximately $7.5 billion.
Key Trends and Developments
Several important changes characterize this period:
- Since March 10, when U.S. regulators closed Silicon Valley Bank, over $15.7 billion in USDC has been redeemed. Its circulating supply fell by about 36% to roughly $27.7 billion.
- This triggered a chain reaction. DAI and FRAX, which held significant USDC reserves, were particularly affected. DAI’s supply fell from around $5 billion to approximately $3 billion—a drop of nearly 40%.
- BUSD, facing regulatory pressure, also experienced continued redemptions. Since March, its supply has been reduced by more than $4.5 billion, falling to around $4 billion—effectively cut in half.
Meanwhile, USDT has reinforced its position as the leading stablecoin. While USDC, BUSD, and DAI declined, USDT’s market cap grew from $70.9 billion to over $83.4 billion—an increase of more than $12.5 billion.
TUSD, newly endorsed by Binance, hovered around the $2 billion mark for several months after mid-March. However, beginning in June, its supply increased by $1 billion—a growth of over 50% in just half a month.
Interestingly, during this period, the total stablecoin market cap remained steady at around $129.6 billion. The rise of TUSD offset slight declines in USDC, BUSD, and DAI, while USDT’s market cap remained unchanged (though it did shift billions from Tron to Ethereum).
This period coincided with BNB stabilizing and Bitcoin beginning a significant upward trend. From a capital flow perspective, TUSD’s expansion may have played a key supporting role.
Looking ahead, the interplay between USDT, USDC, BUSD, and TUSD will continue to influence the market. Whether USDT can maintain growth or if USDC halts its decline will be critical factors to monitor.
DeFi Blue Chips Embrace Real-World Assets
Beyond stablecoins, the integration of real-world assets (RWA) is becoming an important variable. Recently, established DeFi blue chips like MKR and COMP have shown signs of revival, with RWA playing a central role.
MakerDAO’s RWA Strategy
MakerDAO has been a pioneer in real-world asset tokenization. As early as 2022, the project began allowing asset originators to tokenize real-world assets for collateralized loans. Recently, it has capitalized on the growing interest in RWA.
This strategy is especially relevant given the shifts in the stablecoin market. The growth of DAI and other decentralized stablecoins has often been tied to the expansion of fiat-backed alternatives like USDT and USDC.
For instance, users often rely on USDC within MakerDAO to mint DAI, meeting the demand for non-custodial and permissionless stablecoins. With recent instability in USDC, RWA can serve as a new anchor for DAI.
Moreover, tokenized U.S. Treasury bonds—which currently offer yields exceeding 5%—provide returns that surpass most DeFi yields. By bringing these assets on-chain, MakerDAO can use traditional finance yields to support DeFi growth.
Compound’s Foray into RWA
Compound is also making significant moves in RWA. Jayson Hobby, former Head of Product at Compound Labs, is now CEO, while founder Robert Leshner has filed documents with the SEC for a new company named Superstate.
Superstate aims to create a short-term government bond fund that uses Ethereum as a secondary record-keeping tool. The fund will invest in ultra-short-term government securities, including U.S. Treasuries and agency debt.
In essence, Superstate intends to tokenize U.S. Treasury bonds on Ethereum, enabling on-chain ownership tracking and direct trading.
The appeal of RWA, particularly U.S. Treasuries, lies in their high yield and low risk. With returns above 5%, they attract capital that might otherwise remain in lower-yielding DeFi protocols.
However, this also means that RWA could draw liquidity away from existing crypto markets in the short term. While bullish long-term, the immediate effect may lean bearish.
Advances in Decentralized Stablecoins
Established DeFi projects like Curve and Aave are also making progress in the stablecoin arena.
As of this writing, the leading decentralized stablecoins remain DAI and FRAX, with market caps of approximately $4.3 billion and $1 billion, respectively. DAI’s supply has nearly halved since the beginning of the year, while FRAX has remained relatively stable over the past year.
DAI’s decline is largely linked to the depegging of USDC during the Silicon Valley Bank crisis. FRAX, an algorithmic stablecoin, never fully recovered after the collapse of UST in May 2022. Its supply quickly halved to $1.5 billion and gradually fell to around $1 billion, where it has remained.
While DAI and FRAX are likely to continue their current trajectories, new decentralized stablecoins are emerging.
New Contenders: crvUSD and GHO
crvUSD, launched by Curve on May 18, has already exceeded 55 million tokens minted. It supports collateralization via sfrxETH, wstETH, WBTC, WETH, and ETH—covering most major liquid staking tokens.
Similarly, Aave’s native stablecoin, GHO, is expected to launch soon. As two of the largest DeFi projects with deep liquidity and user bases, Curve and Aave are well-positioned to bring meaningful innovation to the decentralized stablecoin market.
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Frequently Asked Questions
What are real-world assets (RWA) in DeFi?
Real-world assets refer to traditional financial instruments, like bonds or real estate, that are tokenized and brought onto blockchain networks. They allow DeFi protocols to use these assets as collateral or investment vehicles, merging traditional finance with decentralized applications.
Why are stablecoins important for crypto markets?
Stablecoins serve as the primary medium of exchange and store of value within crypto ecosystems. Their supply and flow often correlate with market liquidity and investor sentiment, making them a key indicator of market health.
How does RWA impact DeFi yields?
RWA can significantly improve yields in DeFi by introducing high-yielding, low-risk assets like U.S. Treasuries. This allows protocols to offer better returns to users while diversifying their collateral base.
What is the significance of crvUSD?
crvUSD is a decentralized stablecoin that uses innovative liquidation mechanisms and supports a wide range of collateral types. Its growth reflects continued experimentation and demand for non-custodial stable assets.
Can TUSD replace BUSD?
With regulatory pressure mounting on BUSD, TUSD has gained Binance’s support and increased its supply. While it’s still early, TUSD could capture some of BUSD’s market share if adoption continues.
Is USDT’s growth sustainable?
USDT continues to dominate the stablecoin market, but its growth depends on regulatory developments, user trust, and competition from other stablecoins. Its ongoing expansion reflects strong demand for dollar-backed assets in crypto.
Conclusion
The current market offers few clear hotspots. Fundraising and investment activity are down nearly 80% compared to last year. While narratives like RWA are gaining traction, they are not entirely new.
In this context, the flow of stablecoins like USDT remains a crucial barometer. As emphasized earlier, the crypto market’s cycles are closely tied to changes in the supply of dollar-denominated stablecoins.
The relative changes among USDT, USDC, and TUSD will continue to influence secondary market prices. Keeping a close watch on these metrics can provide valuable insights into market direction and sentiment.