Why Is USDT Supply Falling Now?
Tether’s USDT, the largest dollar-pegged stablecoin, is on course for its steepest monthly supply decline in three years as large holders increase redemptions, according to blockchain data compiled by Artemis Analytics and reported by Bloomberg.
USDT’s circulating supply has fallen by roughly $1.5 billion so far in February, following a $1.2 billion drop in January. If the pace continues, February would mark the biggest monthly contraction since the period following the collapse of crypto exchange FTX in November 2022.
In December 2022, USDT supply declined by about $2 billion as the failure of FTX and its affiliated entities triggered widespread withdrawals and a rush to reduce exposure across the industry. The current drawdown is smaller in scale but notable given the absence of a comparable systemic shock.
USDT remains the primary liquidity rail for much of the crypto market. With a market capitalization of about $183 billion, it represents roughly 71% of the total stablecoin sector, according to CoinMarketCap. That dominance means supply contractions can affect trading volumes and short-term liquidity conditions across exchanges.
Investor Takeaway
Is the Broader Stablecoin Market Contracting?
The pullback in USDT has not translated into an outright decline across the stablecoin market. Data from DeFiLlama shows that total stablecoin market capitalization has risen 2.33% in February, increasing from $300 billion to $307 billion.
While USDT and Circle’s USDC have both edged lower—down 1.7% and 0.9% respectively—other tokens have expanded. World Liberty Financial’s USD1 stablecoin, linked to the Trump family, has grown 50% over the past month, reaching a market value of $5.1 billion.
The divergence suggests that capital may be rotating within the stablecoin ecosystem rather than exiting entirely. In that case, the headline decline in USDT supply would reflect redistribution rather than broad deleveraging.
What Are Whales and Smart Money Doing?
On-chain data points to heavy selling among large holders. According to Nansen, whale wallets sold $69.9 million worth of USDT across 22 wallets in the past week, representing a 1.6-fold increase in the selling pace for that group.
Traders categorized as “smart money” based on historical returns have also been net sellers. These flows align with the broader reduction in circulating supply, as redemptions typically occur when holders convert USDT back into dollars or shift into other assets.
At the same time, newly created wallets have been active buyers. Wallets formed in the past 15 days purchased roughly $591 million in USDT over the same week, suggesting fresh demand from newer participants even as larger holders trim exposure.
Investor Takeaway
What Does This Mean for Crypto Liquidity?
Stablecoins act as the base layer for trading across centralized and decentralized exchanges. When supply expands, it often supports higher activity and risk-taking. When supply contracts, it can coincide with tighter liquidity and more defensive positioning.
February’s USDT decline stands out because it comes without a single identifiable shock event. Instead, it reflects incremental redemptions and portfolio adjustments by large holders, set against a backdrop of steady overall stablecoin growth.
If redemptions accelerate, the impact would likely be felt first in spot trading volumes and derivatives funding conditions. If supply stabilizes while other stablecoins continue to grow, the episode may be remembered as a period of internal market rotation rather than contraction.