Stablecoin supply has surged past $20 billion, driven by derivatives market

The total outstanding supply of stablecoin has surged past $20 billion, according to data compiled by The Block Research. 

Most of that growth has been driven by the two largest stablecoins by total supply, Tether and Centre's USDC. In total, the market has grown from $5 billion at the beginning of 2020 to around $20.2 billion today. Tether's USDT comprises approximately 79% of the market. 

Part of the growth in stablecoin supply this year has been driven by the surge in the decentralized finance (DeFi) market. Traders can lock stablecoin into a number of non-custodial lending platforms to earn a high-yield.

The breakneck growth of the crypto derivatives market has also likely played a role in the growth of the stablecoin market, specifically that of USDT. Most derivatives venues require traders to put up collateral in the form of stablecoin. BitMEX, which has seen its market share collapse in recent months, is a notable exception that requires bitcoin collateral. Meanwhile, the market share of exchanges that accept USDT collateral have increased relative to BitMEX.

"I think collateral for derivatives is one the main drivers," said Paolo Ardoino of Bitfinex, the sister firm of Tether. "DeFi follows with I would say around 1.5B of allocation (speaking for tether) and then we're seeing miners getting used to sell bitcoin for tethers rather than dollars."

Jeremy Allaire, CEO of Circle, one of the firms behind USDC, noted that stablecoins benefit in both up and down cycles. 

Said Allaire:

"First, when markets are intense and growing, more capital is injected and USDC benefits from that new capital.  Once USDC is in circulation, users and holders tend to prefer to hold it vs. returning to the fiat system, so it is relatively 'sticky.' Second, when markets are selling off, demand for USDC grows as people seek to exit risk assets and hold stable-value assets, again with users often holding the USDC as they intend to continue to be active market participants."