Stablecoin Supply Drops $10 Billion as a Yield Ban Reroutes the Money

The stablecoin market has lost about $10 billion since May, its sharpest monthly drawdown since the TerraUSD collapse in 2022. Tether’s USDT and Circle’s USDC did almost all of the bleeding.

Both tokens share a legal handicap the rest of the market does not. A new federal law bars payment stablecoins from paying holders any yield at all, and sophisticated money is instead finding its way into tokenized Treasury funds and synthetic dollars that can pay it, while some of Wall Street’s biggest asset managers collect fees no matter which token wins.

USDT and USDC Absorb Nearly All of June’s Retreat

Total stablecoin supply fell $7.7 billion in June to about $312 billion, according to data reported by CoinDesk and aggregated on social media, the largest monthly dollar decline since Terra’s May 2022 unraveling. That is roughly a 2.4% monthly drop and about 3% below the record high the market hit in May.

DefiLlama’s dashboard currently tracks the market near $312.23 billion. USDT alone accounts for about $184.15 billion, close to 59% of the entire sector, while USDC sits near $73.41 billion. USDT has fallen from roughly $190 billion in May, a loss near $6 billion. USDC has dropped from a March peak close to $80 billion, shedding almost $7 billion over four months. Together those two moves explain most of the retreat.

Is Stablecoin Money Actually Leaving Crypto?

Only partly. Transaction volumes hit a record $1.78 trillion in June, tokenized Treasury products topped $30 billion for the year, and a long tail of newer dollar tokens kept growing even as USDT and USDC gave up supply.

USDC alone processed about $1.21 trillion in adjusted transaction volume during June, versus $573 billion for USDT, though USDT still logged more individual transfers, a sign that a shrinking pool of tokens is still carrying heavy retail and trading traffic. Tokenized equity volume jumped 145% in June to a record $3.86 billion. Some of that continued activity shows up in decentralized finance too: the lending protocol Spark, tied to the Sky ecosystem, recently deployed $150 million into Uniswap v4 stablecoin pools, evidence that stablecoin liquidity is still finding new places to work even as headline supply shrinks.

Beneath USDT and USDC sits a crowded second tier that recent issuer-by-issuer tracking shows growing in relevance, if not always in size, even as the giants contract:

Every token that pays yield in that table is either a decentralized project or a tokenized fund wrapper, not a GENIUS-style payment stablecoin. That split is not an accident.

The GENIUS Act Bars Stablecoins From Paying Yield

President Trump signed the GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins Act) into law on July 18, 2025, creating the first federal licensing framework for payment stablecoins. Buried inside it is a provision that shapes everything happening in the market right now.

• Cash held directly by the issuer
• Short-term U.S. Treasuries maturing within a set window
• Overnight repurchase agreements collateralized by Treasuries
• Qualifying government money market funds

Those are the only assets a federally regulated payment stablecoin issuer may hold in reserve. The same statute, according to a legal analysis of the law’s implementation, also prohibits rehypothecation of reserves and bars issuers from paying interest or yield on the stablecoins themselves. A bank-backed dollar token under this law can custody billions safely. It cannot compete on return with a product like BUIDL or USDe.

• Payment stablecoin – under the GENIUS Act, a dollar-pegged token issued for payments and settlement that is legally barred from paying interest or yield directly to holders, unlike tokenized Treasury funds or staked synthetic dollars

Full compliance is not required until January 18, 2027, or 120 days after regulators finish the implementing rules, whichever comes first. The Office of the Comptroller of the Currency and the FDIC are still finalizing those rules, meaning the reshuffling underway now is happening ahead of the law’s full bite. Traditional banks are already positioning for that shift, a trend reshaping the stablecoin market around GENIUS Act compliance well before the January 2027 deadline arrives.

Wall Street’s New Toll Booth

Fidelity Investments launched the Fidelity Reserves Digital Fund in June, a money market fund built to hold reserves on behalf of stablecoin issuers and institutional investors under GENIUS Act rules. It arrived days after State Street rolled out its own State Street Stablecoin Reserves Money Market Fund, part of what intensifying competition among asset managers for stablecoin reserve business now looks like.

Neither Fidelity nor State Street cares much which stablecoin brand wins market share. The GENIUS Act’s reserve rules force every compliant issuer toward the same narrow menu of safe assets, and a money market fund built for that menu earns management fees regardless of whether the dollars sitting inside it back USDT, USDC, or a bank-issued newcomer. The contraction that looks like bad news for token issuers reads as new addressable business for custodians and fund managers a few floors up the same industry.

How This Stacks Up Against 2022’s Terra Collapse

Paul Howard, senior director at trading firm Wincent, put the current pullback in context.

a relatively small pullback in what we believe is a long-term growth market

Howard was describing June’s contraction. The comparison he was rejecting matters. Stablecoin supply fell roughly 26% across the entire 2022 bear market, a collapse triggered by Terra’s failure, a wave of lender bankruptcies, and the implosion of FTX. This year’s drawdown, by contrast, is about 3% from peak, with both major tokens still trading near their dollar pegs.

The erosion here also predates June by a long stretch. USDT and USDC together controlled about 88% of the market as of January 2025. That combined share now sits closer to 83%, a slide that lines up almost exactly with the GENIUS Act’s passage and the buildout of yield-bearing alternatives around it. Europe has been running its own version of this reshuffle since MiCA’s compliance deadlines started splitting the region’s stablecoin issuers into winners and losers, a parallel worth watching as U.S. rules catch up.

July’s Redemption Numbers Will Settle the Debate

Spot Bitcoin ETFs lost more than $4 billion in June, their worst month since launch, arriving in the same stretch as the stablecoin pullback. Weaker institutional fund demand and thinner on-chain dollar liquidity showed up together, even though neither collapse looks severe on its own.

The clearer test comes next. A single month of redemptions tied to a new no-yield law and a wave of institutional launches around it looks different from money actually leaving the system. Analysts will be watching July issuance and redemption data, exchange volumes, and whether ETF flows turn positive again. Another sharp monthly drop, without a matching jump in tokenized funds or transaction volume, would be the first real evidence that this is an exit rather than a reshuffle. For now, the pegs are holding and the trillions keep moving.

Disclaimer: This article is for informational purposes only and does not constitute financial or investment advice. Stablecoin and broader cryptocurrency markets carry significant risk, and figures cited are accurate as of publication in July 2026.