Stablecoins in the cryptocurrency market help provide USD pegged tokens within the volatile industry. In bull markets, the market capitalization of stablecoins tends to decrease as investors flock to more volatile assets and in bear markets, investors seek shelter in low volatility stablecoins thus increasing their market caps.

On Jan. 26, the total market capitalization for stablecoins like Tether (USDT), USD Coin (USDC), Binance USD (BUSD) and Dai (DAI) is over $131 billion.

Stablecoin supply dominance. Source: Glassnode

Stablecoins are so crucial to the future of crypto, that Moody’s, a well-respected analytics agency, is planning to develop a scoring system. The scoring system may help reduce the speculation and fear that some investors have with stablecoins.

Such fear amid a lack of stablecoin transparency has led one of the top stablecoins, BUSD, to see a major usage decline in recent weeks.

Let’s examine the factors affecting the BUSD stablecoin.

BUSD’s market cap takes a major hit

While BUSD market cap witnessed a large bump on Sept. 30, 2022, those gains came from Binance’s decision to forcefully swap the exchange’s USDC holders to their own stablecoin. Those gains have now evaporated. At the time, the automatic conversions cost USDC $3 billion in market cap.

BUSD market cap has continued to fall due to problems with the dollar-pegged tokens' management that first came to light in January 2023. While Binance pushed back on the reporting that the stablecoin was not fully backed, investor fears led to a major exodus.

According to blockchain analytics provider Nansen, the circulating supply of BUSD decreased to $15.4 billion on Jan. 25. The drop represents a decrease of $1 billion in the previous week and $2 billion compared with December 2022.

Stablecoin market caps. Source: Nansen

The most recent decline sped up BUSD's market cap decrease from $22 billion, when worried investors rushed to withdraw money from Binance after it misrepresented the amount of digital assets in its collateral reserves by combining corporate holdings on reports.

BUSD inflows struggle

 Since the price of Bitcoin (BTC) has been on the rise, typically see a decrease in inflow as investors sell for other assets. A way to measure demand for stablecoins is to look at exchange inflows.

According to analytics provide CryptoQuant:

“Higher value indicates investors who deposited a lot at once are increasing recently. For stablecoin, value rise indicates buying pressure”

This means negative numbers show a decrease in buying pressure. While all stablecoins are seeing lower demand or inflows, BUSD has witnessed nearly 3 times more inflow.

All stablecoins inflow versus BUSD. Source: CryptoQuant

The massive decrease in demand may continue as the markets continue to rise and questions around BUSD remain.

The majority of BUSD is on Binance

Stablecoins see an uptick in demand when they are utilized in trading pairs with altcoins. The trading use case works on both centralized exchanges (CEX) and decentralized exchanges (DEX).

A concerning statistic surrounding BUSD is the lack of stablecoin use outside of its parent exchange Binance. While $13.8 billion BUSD reside on Binance, the next closest tally is $32.6 million BUSD on Crypto.com. While Crypto.com may be the second largest exchange for BUSD, USDC is the largest stablecoin on the CEX with $582 million, dwarfing BUSD numbers.

Stablecoins on exchanges sorted by BUSD. Source: Nansen

The lack of use cases following the major decrease in demand for BUSD does not bode well for BUSD market cap if the trend sustains over a long period of time. Combining these two negatives with the recent move by SWIFT to ban USD transfers smaller than $100,000 on Binance suggests that the stablecoin could continue to face major headwinds.

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