High Transaction Fees Drive Stablecoin Users to Solana and Polygon, Ethereum Activity Declines
The activity of stablecoin holders deployed on the Ethereum blockchain has witnessed a sharp decline in May primarily due to the increase in transaction fees . Users have begun moving towards to alternative blockchains like Solana and Polygon which offer lower fees, as reported by The Block .
Switch to Solana and Polygon: Ethereum-based Stablecoin Activity Plummets
Experts reveal that the current month is witnessing the lowest amount of transactions of Ethereum-based stablecoins since December 2020 . Notably the turnover of USDC (USD Coin) over the past three weeks amounted to only $73.1 billion which is a significant drop from the previous month’s levels which was over $158.9 billion . A similar trend can be observed with Tether (USDT) as the trading volume in May dipped below $69 billion compared to April’s $110.6 billion .
Lowest Transaction Levels for ETH-based Stablecoins Since December 2020
Rebecca Stevens, a Block Research Analyst, highlighted that the decline in stablecoin usage is likely caused by the high fees on the Ethereum network . The notable decrease in trading volumes of USDC and USDT reflects the impact of these fees on user behavior and engagement with stablecoins .
Decreased Capital Inflows to Bitcoin and Ethereum Amidst Weakening Stablecoin Activity
The diminishing activity of holders using dollar-pegged digital currencies has had a direct impact on the flow of capital into cryptocurrencies like bitcoin and ether . As stablecoin activity declines the fluctuation range of these major cryptocurrencies has narrowed to multi-month lows . The reduced inflow of capital highlights the connected nature of the cryptocurrency ecosystem and the influence of stablecoin usage on broader market dynamics .
Moreover the trading volume of Binance USD (BUSD) has experienced a fall since February . This decrease in activity can be attributed in part, to Paxful’s announcement in February that it would cease issuing BUSD thereby impacting the token’s attractiveness and overall market demand .