This article was compiled and organized by BlockWeeks
The stablecoin market is undergoing a directional shift: funds are flowing out of USDC and into USDT, which is exactly the opposite of the trend earlier this year. Against the backdrop of broadly rising prices across mainstream crypto assets, stablecoin capital flows provide additional evidence for the market's bullish sentiment—the center of gravity of on-chain activity is shifting back toward offshore markets.
Putting the two indicators together: USDC supply is contracting, while USDT has resumed growth after a long period of stagnation. Together they point to one conclusion: for non-stablecoin crypto assets, this is overall bullish.
Two Stablecoins, Two Uses
USDT is widely used as the fiat on-ramp and off-ramp for the crypto market, especially in Asia. Since China banned crypto trading and the market fell into a synchronized downturn, USDT's growth slowed and even briefly turned negative. The latest recovery in supply means that offshore markets have renewed interest in crypto assets.
USDC, by contrast, is generally regarded as a "safe-haven" asset, especially in DeFi—during bearish sentiment phases, stablecoin yield farms tend to be more popular. Since the beginning of the year, USDC has largely continued to grow and has rapidly captured market share relative to the much larger USDT. On a net basis, the total supply of major stablecoins is still growing slowly.
Total Supply Nearly Quadrupled During the Year
Stablecoins have long been part of the crypto narrative, but this year their weight in the overall picture has clearly increased. On January 1, the scale of issued stablecoins was about $26.8 billion; despite slower growth since the end of May, total stablecoin supply is now close to $112.8 billion, nearly four times higher than at the start of the year.
Beyond the expansion in scale, stablecoins have recently attracted attention for multiple reasons: possible entry by companies such as Facebook, increasingly tough rhetoric from regulators and policymakers, and issuers proactively improving transparency after criticism of being "opaque." The internal structure of the stablecoin market is also changing.
By total supply, the largest stablecoin is the multi-chain asset USDT issued by Tether, at $67.2 billion. In absolute dollar terms, USDT's growth this year is also the highest in the entire market. But in percentage terms, other stablecoins are eroding its share, most notably USDC, whose total supply is currently $25.8 billion.
USDT and USDC are the two stablecoins with the highest market share, with USDT clearly in the lead. Between the two, USDT handles most transaction counts and transfer volume, partly because it is hosted and widely used across multiple chains as a settlement asset between exchanges. Transaction counts and transfer volumes for both had previously been suppressed and have recently recovered.
Catching Up on Transparency: Reserve Adjustments by Tether and Circle
Both major issuers have recently been improving operational transparency and switching to lower-risk assets to back their reserves. Tether provided more comprehensive attestation reports through its accounting firm Moore Cayman. The report shows that 24% of USDT's value is currently backed by U.S. Treasuries, compared with only 3% in the previous reserve composition disclosure released on March 31. Company executives also said a full audit report will be released within months.
Circle, which manages USDC reserves, announced that the asset will in the near future be fully backed by cash and Treasuries—a clear shift from the more diversified reserve structure it previously disclosed. The move aligns Circle's product with Paxos, whose PAX and BUSD stablecoins are fully backed by cash equivalents and Treasuries.
Why USDT Is Rooted in Tron
The earliest stablecoin, USDT, initially found product-market fit by letting users bypass the banking system—at a time when banks were openly hostile to crypto companies and traders. Compared with bank transfers, stablecoins also offer the advantages of speed, being borderless, lower cost, and 7×24 settlement, which is extremely valuable in a fast-paced, globalized industry like crypto. USDT was initially issued on the Omni layer on top of Bitcoin and is now mainly used on Ethereum and Tron, largely because these two networks have shorter block times and faster settlement.
USDT's use on Tron is particularly noteworthy. Tron's settlement guarantees are relatively weak, and it is generally not regarded as a secure platform. But as a centralized asset, USDT is little affected by Tron's weak settlement guarantees and can instead fully exploit the platform's low congestion. Specifically, USDT tokens represent IOUs against reserve assets held by the centralized entity Tether Limited, and Tether can cancel, revoke, or reissue these IOUs at will, so it does not need the more durable finality provided by Bitcoin or Ethereum.
Many of USDT's core use cases are time-sensitive, making it very well suited to Tron—fast block times and generally lower fees due to lower network congestion than Bitcoin and Ethereum. USDT's uses include: as an entry point into the crypto market, as a quote currency for spot and derivatives trading, as a vehicle for cross-exchange arbitrage, and as a tool for international dollar-denominated transfers.
Chinese OTC Demand and Regulatory Shock
USDT is widely popular in offshore markets, especially in China—it is a key link in the workflow of converting fiat currency into crypto assets. Because regulations prohibit financial institutions from providing services to crypto exchanges, users typically first exchange fiat for USDT at OTC counters and then deposit USDT to exchanges. This process is somewhat cumbersome, but it allows Chinese users to access crypto assets in a highly regulated environment and constitutes a major source of USDT demand.
Since China announced further restrictions on crypto trading in May, USDT supply growth has been basically flat, and free float (a supply measure excluding inactive tokens and issuer inventories) once contracted to a local low of $62 billion on July 26. In recent weeks, USDT supply has resumed growth, indicating that offshore market interest in entering crypto assets is returning; free float is currently $65.2 billion.
USDC: The "Safe-Haven Currency" of DeFi
USDC is mainly used in the United States and serves more as a reserve currency for DeFi rather than as an on-ramp like USDT. Although USDT is also used in DeFi, USDC has higher adoption in this area. The DeFi ecosystem lacks connections to the traditional banking system, and strong demand for dollars has created significant interest in USDC lending, also giving lenders decent annualized yields. This, together with the relative stability of U.S. exchanges' banking access, has driven USDC's popularity in this area. However, using a centralized stablecoin like USDC within the ecosystem is controversial: as a centralized asset, it can be frozen or seized by the issuer at any time.
In DeFi, USDC is often used as a risk-avoidance asset, especially as an entry point into stablecoin farms—that is, incentive-bearing yield programs with stablecoins as principal. When the market is broadly uncertain, stablecoin farms are quite popular: users can earn yield without taking on volatility and without fully exiting the crypto ecosystem.
Data from leading decentralized lending protocol Aave shows that since USDC supply peaked on August 8, lending activity in USDC has declined. This provides evidence that the market is shifting toward risk appetite and that sentiment is broadly positive.
Conclusion: Sentiment Signals Revealed by Supply Changes
Stablecoins are stable overall; in other words, they are "boring." Although they occasionally depeg, such deviations usually do not last long and are mostly accompanied by more violent fluctuations in other markets. Most buyers seek "calm waters" and distance from the volatility of the rest of the crypto market.
Nevertheless, stablecoins have proven extremely successful. Stablecoins have the potential to become a breakthrough technology in consumer payments, but that potential has so far largely gone unrealized. Instead, the two major stablecoins have each found product-market fit in two different transactional use cases.
Relative demand for these services and the industry's aggregate trends may reveal preferences that asset prices do not reflect: this time it is sustained bullish sentiment—growth in USDT supply means new funds are flowing into the ecosystem, while a decline in USDC supply suggests weakening safe-haven demand in DeFi. As the market heats up again, stablecoin supply data deserves continued attention.
