Stablecoin Market Shrinks $16 Billion as GENIUS Act Takes Hold
The stablecoin market has experienced its worst decline since the Terra implosion in 2022. Over the past 10 weeks, the total market capitalization of stablecoins has dropped by $16 billion, hitting a six-month low and marking the first sustained contraction in four years.
According to data, the stablecoin market peaked in May at around $300-$316 billion. By late July, it had declined to between $300-$310 billion, representing a 3% drop. The last time stablecoins experienced such a significant decline was in May 2022, when the Terra/Luna collapse wiped out 26% of the market in just a few days.
The dominant force in stablecoin markets, USDT, has lost around $6 billion in market capitalization during this period, dropping from $190 billion in May to approximately $184 billion by late July. Similarly, USDC's market cap has declined from its March peak of around $80 billion to roughly $74 billion over the same period.
The most significant factor contributing to this outflow is the GENIUS Act, enacted in July 2025. This federal regulatory framework prohibits yields for payment stablecoins, treating them as payment instruments rather than investment vehicles. As a result, tokenized Treasury products have surged to around $16 billion in assets, offering investors on-chain representations of US government debt with similar liquidity characteristics.
Interestingly, while market capitalization has contracted, stablecoin transaction volumes have reached record highs. June 2026 saw adjusted transaction volume reach $1.79 trillion, a sharp annual increase. This decoupling between holdings and usage suggests that stablecoins are evolving from hybrid savings-and-spending instruments into something more purely transactional.
For the broader crypto market, a shrinking stablecoin supply has historically correlated with reduced buying power on exchanges. Less dry powder sitting in USDT and USDC means less capital ready to rotate into Bitcoin, Ethereum, or altcoins on short notice. The GENIUS Act's regulatory environment now prevents Tether and Circle from offering yield as a competitive feature, opening the door for yield-bearing alternatives to capture a growing share of on-chain dollar demand.