Liquidity returns on exchanges through USDC inflows

Just a day after one of the biggest liquidation and spot-selling events, liquidity seems to be returning to crypto markets. This time, inflows of USDC propped up the market, with more rapid inflows compared to other stablecoins. 

Inflows of stablecoins onto crypto markets are signaling a new potential recovery. This time, USDC is one of the most active tokens, with peak deposits to exchanges. The exchange flows, and increased minting on Solana happen as USDC catches up on its growth. In the past 30 days, USDC added more than 9.1M tokens, with over 6B tokens on Solana. At the same time, Tether (USDT) expanded by only 1.7B. 

USDC flowed into exchanges immediately after both Bitcoin (BTC) and Ethereum (ETH) slid to a lower range. The stablecoin inflows coincided with signs of whales ‘buying the dip’ while holding liquidity on the sidelines. USDC achieved daily trading volumes above $17B in 24 hours, still behind USDT’s activity of over $130B.

The recent inflows also came from Tether (USDT), which is also widely in use. USDT inflows were similar to the market rally in November, though with a slower turnover of the outstanding supply. Both leading stablecoins are seen as a bullish indicator when there are signs of upcoming allocation to the markets. 

Baseline inflows of both USDT and USDC were higher in the past few months, though especially notable after market dips. Stablecoins not only tracked BTC opportunities, but flowed into ETH and other prominent altcoins, though with a smaller allocation. 

USDT exchange reserves climb to all-time high

While BTC and ETH flowed out of exchanges, stablecoins were held in exchange wallets as a tool to react fast to market conditions. The tokens are seen as less risky to store on exchanges, as both Circle and Tether have shown some ability to track and freeze funds in the case of exploits.

In addition to exchange flows, USDT has resumed its supply expansion. In the past week, the correlation between the supply of USDT and the price of BTC turned positive again, potentially signaling a market recovery. USDT returned above 139B tokens, while BTC still managed to recover above $100,000.

The most active inflows of USDT happened at the end of 2024, but the current supply on centralized markets is close to an all-time high. 

USDC inflows lagged, as the token started expanding its supply in the new year. Despite this, USDC also responded to the bull market, expanding its supply from 2.7B on exchanges to over 4.78B tokens in February. Over $1B in USDC flowed into exchanges in the past few days. USDC is gaining traction in Europe, as more of the local brokerages are trying to stay compliant, by limiting USDT services and products. 

While stablecoins are key to market liquidity, there is still some skepticism about the potential for government and regulatory control against those assets, including wallets getting frozen. At the same time, stablecoin issuers are trying to become compliant and retain their business model, as the smart contracts for stablecoins are one of the key fee producers and drivers of on-chain activity.

Stablecoin supply reaches new record

Despite the slide of altcoins and the correction of BTC and ETH, the supply of stablecoins remains flat or growing. Data from Artemis revealed the total supply of stablecoins is now over 215.4B tokens, marking a new record. The tracking of VISA puts the total supply at over 206B, after discounting some of the niche synthetic coins and tokens. Stablecoins are still a growing sector, making up just 1% of the supply of the US dollar.

The new year brought a growth of the supply of EURC, with small additions to USDS from the Sky ecosystem. The newly launched USDT0, however, is off to a slow start, with 602.8M tokens flowing out just days after the launch.

Ethereum remains the busiest hub for USDT, while Solana is quickly becoming the leading carrier for USDC. The supply of stablecoins on TRON and Solana is increasing fast, reflecting demand for DEX activities. 

Stablecoin supply is growing due to demand for passive income. There are no limitations to using stablecoins in riskier decentralized products, and some of the idle assets can produce relatively high passive income as collaterals for loans or in liquidity pools.

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