Stablecoins, which are cryptocurrencies pegged to real-world assets like the US dollar, are experiencing a decline in market capitalization. This decline is due to subdued trading volumes and a weaker dollar. According to research firm CC Data, the market cap of the stablecoin sector is set to decline for the 18th consecutive month. It has shrunk by almost a tenth this year, standing at $124.4 billion as of September 14.
The value of stablecoins is influenced by the demand for the US dollar. When the dollar index rose due to interest rate hikes last year, stablecoin volumes also increased. However, not all stablecoins are suffering. Tether, the largest stablecoin, reached an all-time high of $83.8 billion in July and has since dipped to around $82.9 billion. Tether’s popularity in certain regions, such as emerging markets in South America and Central Asia, has contributed to its value.
Stablecoins play a key role for traders, allowing them to hedge against price fluctuations in other tokens and store idle cash without converting it into fiat currency. However, the stablecoin market has faced challenges, including the collapse of TerraUSD and the losses of Binance’s dollar-linked token BUSD. In addition, both Tether and USD Coin lost their pegs to the US dollar at different points last year.
Overall, the decline in stablecoin market capitalization is attributed to factors such as weaker trading volumes, a weaker dollar, and past market failures. However, industry experts believe that corrections in the market will occur in the future.
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