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USDC Volume Driven by Market Makers: Is Solana Stablecoin Boom Smoke and Mirrors?

Last Updated January 30, 2024 10:11 AM
Teuta Franjkovic
Last Updated January 30, 2024 10:11 AM

Key Takeaways

  • Solana’s stablecoin transfer volume has surged dramatically in recent months.
  • One pattern suggests that a small number of market makers may be artificially inflating transaction volumes.
  • Paxos has launched its USDP stablecoin on Solana, further solidifying the blockchain’s position.

The surge in stablecoin transfer volume on the Solana blockchain has recently turned heads. An influx  of approximately $303 billion in January alone marks a staggering 2,520% increase from the mere $11.56 billion recorded in January 2023.

The explosive growth has catapulted Solana’s market share in the stablecoin arena to nearly 32%, a significant leap from the 1.2% share it claimed just a year prior.

USDC Transfers on Solana Questioned

Recent data has unearthed a concerning pattern within the realm of USD Coin (USDC) transfers, hinting at a market heavily influenced by a handful of players. A tweet  brought to light that over the past week, an overwhelming 90% of the $120 billion in USDC transfers were executed by a mere nine accounts.

Intriguingly, all of these accounts are associated  with Phoenix market  makers.  Phoenix, while notable, does not boast a market volume that would justify such substantial figures. This discrepancy points to a practice of inflating numbers through the creation and subsequent cancellation of orders that are never intended to be filled.

However, the concentration of USDC transfers among a select few market makers casts a shadow of doubt over the authenticity of these numbers. The practice of artificially inflating transaction volumes by creating and canceling unfilled orders raises questions about the actual liquidity and activity within the Solana stablecoin market.

Are Market Makers Fueling Surge in Transactions?

The dramatic rise in Solana’s stablecoin transfer volume, notably starting in October 2023 and surging  by 650% since, has been a key driver in the blockchain’s increasing prominence.

Yet, the revelation that the overwhelming majority of USDC transactions are controlled by a limited circle of market makers prompts a critical assessment of the market’s true dynamics.

Stablecoins transfers
Credit: Artemis

Ethereum  currently reigns supreme in the stablecoin transfer volume arena, boasting an impressive $317 billion in transactions this month alone. This robust activity secures Ethereum a commanding market share of over 33%. Nevertheless, Solana is quickly gaining ground, demonstrating a swift and determined catch-up in the market.

Tron  stands as the third major player in this domain, with its stablecoin transfer volume reaching $240 billion in the same timeframe, marking a significant presence in the landscape.

Introducing USDP to Solana Amid a Year of Trillion-Dollar Transfers

Paxos recently also marked a significant milestone on January 18th by launching  its USDP stablecoin on the Solana blockchain. This strategic move comes at a time when the stablecoin market is witnessing unparalleled activity, with a staggering $1.18 trillion transferred across various blockchains in the past year.

The introduction of USDP to Solana coincides with a notable surge in decentralized finance (DeFi) activities on the network. The total value locked in Solana’s DeFi protocols has soared, reaching an impressive $1.36 billion, the highest since September 2022, as reported by DefiLlama .

Boosted by these advancements, Solana’s native cryptocurrency, SOL, has experienced a big jump  during the last seven days. The price of SOL skyrocketed by 27.78% in seven days , currently trading at $103.16. This however marks a 16% decrease from its December 2023 peak of $123 and a significant drop from its all-time high of $260 recorded in November 2021, indicating there is still a certain period of market correction and investor reassessment within the Solana ecosystem.

As the Solana stablecoin market continues to expand at a breakneck pace, it becomes imperative for investors, analysts, and enthusiasts to peer beyond the surface. The allure of skyrocketing numbers and market shares is undeniable, but the underlying mechanisms driving these figures warrant a thorough and discerning examination.

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