The market capitalization of the two biggest stablecoins on the market is down more than 20% from their peaks as the profitability of decentralized staking and lending operations dropped below the return of the one-year treasuries.
Factors behind weakening
With the rate hike cycles initiated by the Fed, more investors moved from sophisticated blockchain-based currencies toward traditional treasury bills that generate a significant profit and remain safer in comparison to any decentralized passive income solution.
After the plummeting of the DeFi industry, the average APR of the yield dropped to 1-2%, while remaining risky, unstable and vulnerable to hackers and scammers. With the increasing key rate, institutional and large retail investors shifted their attention toward treasuries, removing almost 20% of the market capitalization of stables like Tether or USDC.
But the higher return of traditional investment tools is not the only reason behind the decreasing popularity of blockchain-based currencies. The overall state of the cryptocurrency market urged investors to safeguard their funds from potential volatility spikes.
While most market participants are comfortable having their funds in assets like Tether, a large portion of investors moved away from crypto completely, exchanging stablecoins for United States dollars, despite the inconvenience and fees they have to pay.
After the implosion of FTX, the outflow from the cryptocurrency market accelerated and the reserves of centralized exchanges hit multi-month lows. Unfortunately, the situation will stay the same until the accumulation on the market ends and the trend reverses upward.
Luckily, financial regulators and numerous analysts expect a pivot by the end of the year or the beginning of 2023, as the financial regulator's sentiment is gradually shifting toward a more discreet monetary policy.