A report into crypto’s capital flight

Key Takeaways

• The balance of stablecoins on exchanges is at a 2-year low
• In the last 5 months, over half the stablecoin balance on exchanges has flowed out, equivalent to $22.8 billion
• Treasury yields above 5% have given viable alternatives for investors, with capital fleeing stablecoins
• BUSD shutting down and USD Coin getting caught up with the SVB collapse has also pushed money out
• Tether has its highest market share in two years, despite 30% of its supply on exchanges heading for the exit door since FTX collapsed six months ago

A couple of months ago, I put together a deep dive analysing the flood of stablecoins leaving exchanges. 

As of today, the exodus shows no sign of slowing down. Over half the total supply of stablecoins on exchanges has now fled in five months, equivalent to $22.8 billion. 

As the above chart shows, the outflows kicked off in Q4 of last year, following the collapse of FTX, a time period during which Binance also came under heavy fire for how opaque its operation was. 

Some outflows are easily explained. In February, BinanceUSD issuer SEC was sued by the SEC for violations of securities law, the development meaning the Binance-branded stablecoin would be no more, its market cap set to gradually decline to zero. 

USD Coin, the US-domiciled stablecoin issued by Circle, has also had its issues. Firstly, being based in the US, there has been concern that regulators will come knocking for the same reason that Paxos came fire. More dramatically, however, was the collapse of Silicon Valley Bank, as 8.25% of the reserves backing USD Coin were held in the fallen bank.

While the SVB debacle ended with the US administration guaranteeing deposits, it did briefly drive the USDC peg down to 92 cents, amplifying the outflows of an already-slipping USDC market cap. 

In fact, when comparing to before the FTX collapse in November, all the major stablecoins have seen significant outflows from exchanges:

Tether market share growing

Even Tether has seen large outflows, its balance falling 30%. This is despite the world’s biggest stablecoin growing even more dominant in terms of market share, now with its greatest share in over two years, as analysed in a previous data piece. 

My deep dive two weeks ago assessed the implications for crypto as a whole of the growing dominance of Tether, but while its market…