Circle’s $2.4bn dominance on Solana shows stablecoin bet is paying off

Solana’s stablecoin supply just blew past $3 billion, according to DefiLlama

The supply has increased by a whopping 71% since the start of the year, according to blockchain analytics platform Artemis. That’s the second-largest rise among major blockchains behind only Coinbase’s Base.

What’s driving the latest rebound back on the speedy layer-1?

Austin Federa, head of strategy at Solana Foundation, chalked the growth up to Solana’s efficiencies and low liquidity requirements.

“Solana is anywhere between five to seven times more capital efficient in its DeFi than other networks,” Federa claimed during an industry event in Paris last week. “What that means is that just a little bit of stablecoin liquidity can actually support a huge volume of transactions.”

The recent rise of memecoin trading on Solana has also been a boon. In March, the network even leapfrogged Ethereum trading volumes thanks to enticing six-figure returns on tokens named after presidents, canines, and pop stars.

Besides any purported technical advantages or buzzy dog coin, there also appears to be a clear preference for one stablecoin in particular.

Circle bets big on Solana

Examining the composition of Solana’s stablecoin supply shows Circle’s USDC stablecoin is far and away the stablecoin of choice on Solana. DeFiLlama data indicates that there are $2.43 billion in USDC on the network, with Tether trailing far behind at just under $800 million.

‘Circle and the Solana Foundation have actively promoted the use of USDC on the Solana blockchain.’

—  Eliézer Ndinga, digital strategy chief at crypto investment firm 21shares.

USDC accounts for over three-quarters of Solana’s stablecoin market. This is surprising because on other blockchains like Ethereum, Tron, and Arbitrum, Tether’s USDT ― crypto’s leading stable currency ― is the dominant stablecoin.

Tether’s offering is also the market’s largest, commanding more than $107 billion in value. USDC has a total value of $32 billion, per CoinGecko.

USDC’s dominance on Solana hasn’t been a lucky win for Circle, either.

“Circle and the Solana Foundation have actively promoted the use of USDC on the Solana blockchain,” Eliézer Ndinga, digital strategy chief at crypto investment firm 21shares, told DL News. “These efforts likely include incentives for developers to build using USDC and for traders and liquidity providers to adopt it within their platforms.”

Solend, a lending platform on Solana, offered up developer grants as high as 30,000 USDC back in 2022. SuperTeam, a Solana-centric promotional organization with outposts around the world, offers a similar grants program denominated in USDC, luring developers to build atop Solana.

Indeed, the majority of bounties available by Superteam for supporting Solana projects are denominated in USDC.

USDC’s dominance on Solana also comes amid Circle’s launch of its Cross Chain Transfer Protocol on the blockchain last month. Solana Foundation’s Federa called the launch “huge,” adding that it’s something developers “have wanted for awhile.”

Users who wish to move USDC from Ethereum or other blockchains to Solana have to use protocols known as bridges in crypto.

CCTP is a bridge protocol that allows users to transfer USDC across different blockchains. The USDC being moved is burned on the sender blockchain, and an equal amount is natively minted on the receiver blockchain.

It’s one of the many efforts to unify DeFi’s fragmented market, where liquidity is siloed in different protocols and blockchains.

Apart from CCTP, USDC liquidity on Solana may also be boosted by Circle’s launch of Web3 Services, a suite of software tools meant to facilitate the building and interaction with smart contracts.

Dante Disparte, Circle’s CSO and head of policy, was adamant that Circle isn’t “picking winners or losers.”

“Where there is developer demand, these tools and capabilities will follow,” he told DL News.

Vanquishing Bankman-Fried’s ghost

Despite the latest increase, Solana’s stablecoin supply is still well below its $6.1 billion peak of May 2022.

FTX founder Sam Bankman-Fried, recently sentenced to 25 years in prison for crypto fraud, was a major Solana backer. That association contributed to Solana’s decline following the exchange’s failure.

Part of that decline saw Solana’s stablecoin supply fall by half immediately after the FTX collapse, a drop that lasted until the recovery process began over a year later.

Osato Avan-Nomayo is our Nigeria-based DeFi correspondent. He covers DeFi and tech. To share tips or information about stories, please contact him at osato@dlnews.com.