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USDC and Tether Are Plunging, Here's Reason Why

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Mon, 28/11/2022 - 10:37
USDC and Tether Are Plunging, Here's Reason Why
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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.

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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.

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Source: CoinMarketCap

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.

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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.

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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.

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