The total supply of stablecoins saw its first significant drop in the second quarter of this year

According to data analysis firm Coinmetrics, in the second quarter of 2022, the total supply of stablecoins saw the largest decline in history, due to "short-term liquidity and concerns about bankruptcy that were not seen during the panic of 2020." Coin redemptions surged.

Lucas Nuzzi, head of R&D at CoinMetrics, highlighted the data via Twitter on June 16, with a chart showing the total stablecoin supply since January 2020.

“Q2 2022 is the first time in the history of stablecoins that the total supply has declined. Even excluding UST, over 10 billion stablecoins *redeemed* directly from major issuers*.”

The chart includes DAI, UDST, OMNI and TRON, SAI, USDK, PAX. While Circle’s USDC and Binance’s BUSD are in another chart. Terra's UST is not included in the chart.

Nuzzi pointed out that Tether had the largest redemption volume of any centralized stablecoin issuer, and that in April and May, the total supply of USDT was reduced by 7 billion, which may be caused by the actions of a few people, rather than any major Market volatility.

"The magnitude of the reduction suggests that it was caused by a single entity or small group," he said.

In May, the Terra ecosystem (including its native LUNA token and UST stablecoin) imploded, while Tether’s USDT de-pegged about 5% from the U.S. dollar. As a result, roughly 7 billion USDT was redeemed as big players looked to exit the market to avoid any further potential losses.

Another hard-hit project was MakerDAO’s DAI, which saw its supply cut by 40% due to “the largest liquidation event in its history.”

Charts for USDC and BUSD also show a sharp reduction in supply of around 5 billion in May, but both have since rebounded to near their respective all-time highs of 65 billion and 48 billion respectively.

Unique market conditions in 2022 may explain why stablecoin users have been risk-averse over the past few weeks.

The crypto space has seen the Terra ecosystem worth an estimated $40 billion collapse so far, while lending platform Celsius and venture capital firm Three Arrows Capital have also struggled to avoid bankruptcy, in part due to reports of companies going into liquidation , exposure to Terra, declining asset prices, and a potentially unsustainable business model.

Tether also has Celsius exposure through a $10 million equity investment in 2020 and a $1 billion loan to the company last year. On Monday, the company issued a statement stating that the plunge in the price of Celsius’ native token and the company’s liquidity issues will have “no impact” on its reserves.

The company said its lending activity with Celsius "has been overcollateralized".