- Despite rising supply, stablecoins are mostly held in derivatives, limiting their impact on market liquidity and leaving spot markets struggling.
- The market faces a demand crisis, not a liquidity issue, as stablecoins fail to flow into spot trading, fueling higher volatility.
Since November 2024, the total stablecoin supply has exploded. Looking at the numbers, this sounds like good news, right? Unfortunately, the ground reality is not so straightforward.
Most stablecoins are really sitting on derivatives exchanges, not on the spot market and thereby fueling liquidity. This implies that real transactions less influence present price swings than speculative trading.
Stablecoin Supply is Increasing, But Market Impact is Limited
“As long as stablecoin volume in derivatives exchanges does not flow into spot markets, we are likely to continue seeing high volatility in the short term.” – By @theKriptolik
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https://t.co/9pT9oPBAug pic.twitter.com/LUlNoD532A
— CryptoQuant.com (@cryptoquant_com) March 19, 2025
More Stablecoins, Less Impact: A Market Paradox
On the one hand, the growing supply of stablecoins ought to be fuel for better changes in the market. On spot exchanges, stablecoin reserves actually continue to fall; on derivatives exchanges, they have rather expanded. This explains a pretty strange scenario when money seems to exist but is not really in circulation where it ought to be.
Imagine a city that suddenly receives a truck full of fuel. Logically, vehicles in that city will be freer to move around, right? However, if all that fuel is stored in a warehouse and can only be accessed by a handful of people, then what’s the point? That’s what’s happening in the crypto market right now.
A Demand Crisis, Not a Liquidity Problem
Many observers first believed that a liquidity crisis constituted the primary cause of the issue. Recent statistics, however, indicate that a demand crisis is engulfing the sector.
Although stablecoins are readily available in great numbers, their influence on pricing will remain negligible if they are not employed immediately for market purchases of assets. This also clarifies why market volatility stays high: the main activity is focused on derivatives, which are far more speculative in character.
On the other hand, a CNF report reveals that the stablecoin market capitalization has lately exceeded Ethereum’s capitalization at $236 billion. USDT oversees about $143.3 billion out of that total.
From big corporations to individual investors, this number demonstrates how steadily different groups—from all kinds of institutions—are leveraging stablecoins. Still, this rise is insufficient to bring the spot market back alive.
Regulatory Hopes and Growing Stablecoin Adoption
Though the spot market is very slow right now, several developments could provide a ray of hope. One of them originated with American authorities.
Blockchain Association CEO Kristin Smith speculates that laws pertaining to stablecoins and crypto market structure would be passed by August 2025 at the latest. Should this control help to provide improved legal clarity, it is likely that the spot market will once more be active.
Concurrent with this growing curiosity in stablecoins is also From 19.6 million in February 2024 to more than 30 million in February 2025, a report from Artemis and Dune observed that the number of active stablecoin wallets had grown by more than 50% in the past year. This rise indicates that, even although derivatives still rule the present stablecoin trend, regular investors are using stablecoins more and more.
Investor Optimism Persists Despite Market Imbalance
Apart from regulation, the stablecoin market has just got fresh support from investment in this sector. From Kindred Ventures, the startup Stable Sea successfully secured $3.5 million on March 19, 2025. This indicates that investors remain hopeful about the future of stablecoins even if the spot market has not rebounded.
Still, volatility will be a feature of the crypto space until the equilibrium between spot and derivative markets recovers.
