Can the issuance of stablecoins really drive the market up? Unveiling the recent dynamics of USDT, USDC, and PYUSD

Author: WOO X Research

Background

On September 23, USDC Treasury once again minted 50 million USDC on Ethereum, marking the second time Circle has minted 50 million USDC since September. Coincidentally, another stablecoin giant, Tether, also minted 1 billion USDT on Ethereum on September 16.

In addition to the issuance of the two most mainstream stablecoins, Web 2 payment giant PayPal launched PYUSD, making a strong push into the Solana ecosystem, binding with the lending protocol Kamino.

According to DeFiLlama data, the overall market capitalization of stablecoins has grown from 130 billion dollars to the current 172 billion dollars since the beginning of 2024, with an annual increase of up to 32%.

The issuance of stablecoins does not dilute a single value like other tokens; due to the collateral backing them, they can maintain a peg to one dollar, representing an increase in demand for stablecoins in the crypto market. Theoretically, this is also seen as hot money flowing into the market, signaling bullish sentiment.

Even though the growth of stablecoins this year is evident, the market in this cycle is still criticized for lacking liquidity and new funds. Is the aforementioned theory proven false? What is the actual correlation with cryptocurrency prices and the overall TVL of the crypto market? What are the recent strategic moves of the major stablecoin issuers mentioned above?

Let WOO X Research take you on a deep dive.

U.S. Department of Agriculture

Data Situation

USDC had a market share of 32% in March 2022, but after the collapse of Silicon Valley Bank, its market share has dropped to 20.6%, with its market capitalization falling from 55 billion dollars to the current 35 billion dollars.

Although the collapse of Silicon Valley Bank had a huge impact on USDC, starting in July 2024, USDC first minted 250 million USDC on Solana; in August, it continued to mint 250 million USDC twice on Solana, and on Ethereum, it minted 50 million USDC twice.

Recently in September, the frequency of minting on Ethereum was increased, with 4 instances of 50 million USDC minted within three weeks, totaling 200 million.

• Ethereum: 9/23 50 million, 9/10 50 million, 9/9 50 million, 8/30 50 million
• SOLANA: 8/8 250 million, 7/20 250 million

Circle's frenzied printing of money in the past three months has resulted in an issuance of about 800 million USDC, which has also led to a slow upward trend in USDC's market capitalization in 2024, healing the wounds caused by Silicon Valley Bank.

Recent Developments

The significance of the issuance, besides the potential indication of hot money inflow mentioned above, also represents the issuer's optimism about the future of the overall crypto market.

Circle Ventures has invested in a total of 12 projects in 2024, averaging 1 to 2 projects per month, with investment types mostly in payment, RWA tracks, and some scattered infrastructure. Recent investments include a 38 million dollar financing for emerging concept PayFi leader Huma Finance and RWA credit market Centrifuge.

Although USDC is a centralized stablecoin, it is an important underlying asset in DeFi. Circle, starting from its own businesses such as payments and RWA (stablecoins bringing real-world assets on-chain can be considered the earliest RWA), has the capacity to accommodate a large amount of funds. When the market heats up and the overall TVL rises, Circle can earn from both on-chain and off-chain, becoming a true money-making machine. Circle's founder Jeremy has also recently stated that they are implementing an IPO plan.

Jeremy also mentioned at the Solana BreakPoint conference that they are exploring the integration of USDC and AI agents to ensure the flexibility and security of wallets and other infrastructure.

From USDC issuance, investment in payments, RWA, infrastructure tracks to AI exploration, Circle is making frequent moves, and the related tracks are worth continuous attention.

Tether

Data Situation

USDT has always been the dominant stablecoin, with a market share of up to 70%, primarily circulating on TRON, accounting for nearly 50%. Its overall market capitalization is as high as 120 billion dollars, growing by 33% since the beginning of this year.

USDT is issued in units of 1 billion, with five issuances this year on both Ethereum and TRON, totaling 10 billion dollars.

• Ethereum: 9/16 1 billion, 8/21 1 billion, 8/13 1 billion, 5/21 1 billion, 2/21 1 billion
• TRON: 8/20 1 billion, 6/15 1 billion, 5/17 1 billion, 4/4 1 billion, 1/29 1 billion

USDT occupies a large share of the stablecoin market, and its parent company Tether naturally profits immensely. According to Tether's Q2 financial report, net operating profit reached 1.3 billion dollars, with 5.2 billion dollars earned in the first half of 2024, a historical high.

The main revenue sources are the 0.1% fee charged during deposits and redemptions, as well as account verification fees and USDT loan interest income.

With its strong market share, Tether has created a network effect, becoming a money printer in the crypto market regardless of bull or bear trends.

Recent Developments

Compared to Circle's expansion from its own business, Tether is more of a diversified player.

Recently, on September 8, it announced the acquisition of a 9.8% stake in Latin American agricultural giant Adecoagro. In July, it announced the development of a decentralized AI model and invested in cloud GPU operator Northern Data Group, with debt financing reaching 610 million dollars. In June, it invested in Bitcoin mining company Bitdeer, purchasing 100 million dollars worth of BTDR stock.

In April, it announced the establishment of four new business departments, including technology, finance, energy (mining), and education, and launched its venture capital department Tether Evo to explore tracks beyond stablecoins.

PY Dollar

Data Situation

PYUSD is not as historically established as USDT or USDC; it was launched by PayPal in 2023 and currently circulates only on Ethereum and Solana, with a circulation ratio of approximately 1:1. Although the circulation on Ethereum and Solana is roughly equal, PYUSD only went live on Solana in May of this year, making it the native stablecoin of Solana. PayPal chose Solana for its excellent settlement speed, transaction fees below one cent, and an ecosystem with over 2,500 developers.

Currently, PYUSD has a market capitalization of 722 million dollars, growing rapidly this year, partly benefiting from Solana's remarkable progress, with its market cap growing about threefold, ranking seventh among all stablecoins.

The recent decline in circulation is attributed to the decrease in annual rewards for PYUSD in various DeFi protocols on Solana.

Originally, depositing PYUSD into the lending protocol Kamino could yield about 13% low-risk returns, but with the end of the activity, current returns have fallen to between 7% and 8%, reducing the willingness to deposit, thus decreasing PYUSD circulation. PYUSD accounts for 78% of the total circulation on SOL, so the outflow of funds from the protocol significantly impacts PYUSD, which is also one of the risks that PYUSD holders need to consider.

Recent Developments

PayPal launched PYUSD in August last year, seemingly entering the market late, but in fact, PayPal Ventures has had records of crypto project investments since 2019. This year, there have been 4 investments across three projects, including participation in all three rounds of funding for on-chain risk control company Chaos Labs (leading the seed round in 2023).

Additionally, it includes this year's popular interest-bearing stablecoin project Ethena and payment platform Mesh. It can be seen that PayPal's development direction still revolves around its own stablecoin and payment business.

Correlation Between Stablecoin Market Capitalization, DeFi TVL & Bitcoin Price

Reviewing past experiences, we can find the correlation between stablecoin market capitalization and Bitcoin price as follows:

• In 2021, as Bitcoin prices rose, stablecoin market capitalization also increased, indicating that funds were flowing into the cryptocurrency market, with investors possibly temporarily holding funds in stablecoins while waiting for opportunities to buy Bitcoin or other crypto assets.

• In 2022, as the market declined, both Bitcoin prices and stablecoin market capitalization fell, indicating that funds were exiting the market, with investors exchanging stablecoins back to fiat or directly withdrawing funds.

• From 2023 to 2024, both Bitcoin prices and stablecoin market capitalization have shown a gradually rising trend, suggesting that the market is regaining interest and funds are flowing back into the cryptocurrency market.

There is a strong positive correlation between Bitcoin prices and stablecoin market capitalization. When Bitcoin prices rise, stablecoin market capitalization usually increases, indicating an influx of market funds; conversely, when Bitcoin prices fall, stablecoin market capitalization also decreases, indicating an outflow of market funds.

The trend of DeFi TVL is even more strongly positively correlated with stablecoin market capitalization, with the line graphs nearly perfectly overlapping. With the recent continuous issuance of stablecoins, we can also expect that after hot money flows in, both Bitcoin and altcoins will be able to restore liquidity.