The 2022 of USD Coin, the USDC stablecoin, has been an eventful year.
While the price has practically always held the peg with the dollar, its market capitalization, on the other hand, has undergone several ups and downs.
The rises and falls of the USD Coin
At the end of 2021, USD Coin capitalized just over $40 billion.
2021 was a hugely successful year for USDC, as it started with a capitalization of just under $4 billion, and then over the course of the year, it increased it by more than tenfold.
That run came to a halt in March of this year, when USD Coin’s market capitalization reached $53.5 billion. However, this was not the absolute peak.
In fact, after a retracement of sorts that brought it back down to $48 billion in early May, when the UST algorithmic stablecoin of the Terra ecosystem subsequently imploded and USDT was assailed by doubts about the resilience of Tether, USD Coin returned to growth, peaking at $56 billion in late June.
It may be no coincidence that this peak was reached just as the crypto markets’ collapse following the implosion of Terra and the failure of Celsius was ending.
In fact, as soon as the market recovered somewhat, USDC’s capitalization went back down, to 42 billion in early November.
At that point, with the FTX bankruptcy, this dynamic became even more interesting.
Until 21 November USD Coin climbed well above $47 billion, but from 22 November there was a sort of reverse rebound, with capitalization falling back to the 42 billion from which it had started just before mid-December.
Between 13 and 14 December, there was something of a spike, with USDC suddenly rising to 45 billion in just two days. Since then it fell slightly to 44 billion, and then rose again to 44.5 billion.
The fact is that current levels of USD Coin’s market capitalization are well below those of about 48 billion touched in early May, although the FTX collapse took it to 47 billion in the second half of November.
The comparison between USD Coin and USDT
It seems almost as if USDC from this point of view benefits most from the crypto markets’ hard times. Indeed, it is most likely no coincidence that the two rises in 2022 occurred after the implosion of Terra and the failure of Celsius, and then after the collapse of FTX.
Comparison with USDT even suggests that Tether’s alleged difficulties are what generated this dynamic.
It is worth mentioning, however, that Tether actually had no concrete and objective difficulties, but it is sufficient that there is unwarranted fear spreading in the markets for many to flee USDT and take refuge in USDC.
Indeed, it is worth noting that USDT has throughout the year remained by far the most traded token in the crypto markets, even more than Bitcoin and especially much more than USD Coin. So the problem is not in the use at all, but only in the fear of holding the peg.
In other words, USD Coin is considered safer than Tether dollar, but USDT is still preferred as a trading currency.
USDT’s market capitalization in 2022 began to rise just before the USDC boom that began last year came to a halt. From February to early March, USDT rose from $78 billion to $83 billion in capitalization.
But then, with the implosion of UST, panic began to spread about the peg of Tether, and so between May and June, there were two collapses in USDT’s market capitalization, which fell below 66 billion.
From August to early November, while USDC’s fell, USDT’s rose slightly again, to 69 billion, and then fell again to 65 after the FTX collapse. Starting in late November, it rose again to the current $66.3 billion, just as USDC was making that curious up and down with that odd spike on 13 December.
Stablecoins pegged to the dollar
With the algorithmic UST stablecoin gone, there remain four main stablecoins pegged to the dollar, even though this market is still dominated by Tether.
In addition to USDT and USDC there is also BUSD and the algorithmic stablecoin DAI.
During 2022, the total market capitalization of stablecoins fell by just over $28 billion, of which BUSD alone lost $3 billion in the last 23 days.
At the beginning of the year, BUSD capitalized about $14 billion, rising to $17 billion in February and then to $23 billion in mid-November.
Since BUSD is tied to Binance, when rumors began to circulate in mid-December about the exchange’s possible difficulty in meeting all the withdrawal requests, its capitalization suddenly dropped below 19 billion.
It is no coincidence that it was on those very days, namely 13 and 14 December, that USDC’s capitalization made that small spike.
Meanwhile, BUSD then also fell to 17 billion, which is the figure it had reached in February after the first growth phase of the year.
So USDC confirms itself as a stablecoin that attracts users especially when the other major stablecoins are struggling.
However, it is important not to forget that even in the case of BUSD there was no concrete and objective difficulty, but only unwarranted fears regarding the resilience of Binance. Such fears have proven to be wrong for now, but BUSD continues to lose market capitalization.
DAI, on the other hand, has followed a different trend, with an almost steady decline over the course of 2022 from the initial 9 billion to the current 5 billion. Being an algorithmic stablecoin, the fears in this case seem more justified, especially after what happened to the other major algorithmic stablecoin, namely the implosion of Terra’s UST in May.
The loss of the peg
None of the four current major stablecoins lost their peg with the dollar during 2022, except for a very short time and with very insignificant deviations.
Occasionally, though, in some specific markets selling pressure can increase faster than arbitrage can raise buying pressure, and so short, momentary losses of the peg can occur until even arbitrage fails to resolve the problem.
This is why it is always worth checking the value of stablecoins on the primary platform, i.e. Bitfinex for USDT, Coinbase for USDC, and Binance for BUSD, where it is the issuer itself that can increase the buying pressure if the selling pressure rises sharply.
A completely different matter applies to algorithmic stablecoins, which have no real issuer. In fact, they are managed by smart contracts that operate automatically, and it may happen that the buying pressure does not increase fast enough.
Indeed, not by accident, the stablecoin that failed this year, UST, was precisely an algorithmic stablecoin, and it was not even the only one of its kind to lose its peg with the dollar.
UST lost it outright, while others, such as Tron’s USDD, are trying to recover it.
It is therefore necessary to first distinguish between stablecoins that are fully collateralized in dollars or similar, such as USDT, USDC and BUSD, and algorithmic ones such as DAI, UST and USDD. In addition, a distinction must also be made between those that lose the peg permanently, and generally their value collapses close to zero, and those that lose it only temporarily and try to recover it over time.
However, the fact remains that among all of them the one considered safest is USD Coin (USDC), while the most widely used is Tether dollar (USDT).