Bridged or packaged stablecoins are now valued at over $10 billion, highlighting the process of outflows from Ethereum. Both native and bridged stablecoins are highly influential in building liquidity on L2 and providing DeFi apps with reserves.
The supply of stablecoins on L2 chains now exceeds $10 billion facts from GrowThePie. The expansion of stablecoins on major L2 protocols has been a slow process, dependent on gradual bridging by whales and retailers. L2 assets are still a small portion of the total supply, but serve an important purpose for DeFi and DEX. USDT and USDC are the most bridged stablecoins, but additional assets such as USDS by Sky, USDe or USDS can move via bridges.
The influx of stablecoins has followed several trends in recent years. VC-backed major L2 Arbitrum and Optimism had a first-mover advantage, which helped them capture stablecoins earlier. Arbitrum is still the leader with $4.62 billion in stablecoin inflows.
Optimism Main Net saw more gradual growth with a total of $1.32 billion. Linea, which overpromised, is still at net inflows of $47 million and even marks an outflow in recent weeks.
The influx of stablecoins coincides with the shift of economic activity from Ethereum to L2. Despite this, USDT is still most active in its Ethereum and TRON versions, which are used on centralized exchanges and for payments. However, L2 is more widely used for high-capacity tasks such as DEX trading and DeFi lending.
The number protocols on L2 chains roughly coincides with the availability of stablecoins. For L2 projects, the sub-$500 million offering is a sign that the network is still a niche market and lacks some of the key apps and protocols, as well as DEX trading volumes. Arbitrum is once again among the leaders, with 697 protocols using the available stablecoins.
One of the problems with the inflow of secondary funds is the fragmentation of liquidity. Once value enters an L2 chain, it remains largely within the boundaries of the apps. Interoperable apps are still rare and essentially require bridging that happens in the background.
Ethereum loses value, users move to L2
The inflow of Ethereum accelerated last month, with a mix of stablecoins and wrapped tokens. Arbitrum raised $2.7 billion from its main network, of which about 28% were packaged stablecoins. In total, Arbitrum provides 51.5% of all inflows, while the rest is spread to Base, Optimism and Polygon.
Arbitrum and Polygon also had the highest USDT and USDC activity in the past three months, even surpassing some of the major L1 chains. The activity was due to first mover advantage and hosting vibrant versions of Uniswap.
Over the past three months, approximately $4.98 million in value has disappeared from Ethereum, of which stablecoins made up a significant portion. More than 50% of Polygon’s inflow consisted of stablecoins. Base had the smallest inflows from Ethereum-based assets, due to the launch of native USDC.
The presence of stablecoins alone is not enough to stimulate network usage. In recent months, Ethereum has seen an outflow of users as most of DeFi moved to L2 for its speed and lower fees.
Ethereum has not tried to fight for users and still benefits from the fees generated by using native USDT. However, the network does not earn or burn ETH due to L2 activity. For now, L2 uses Ethereum for free, without returning value or sharing their profits.
Base drives USDC adoption
The strongest inflow of stablecoins occurred on Base, Coinbase’s tokenless protocol. The Base USDC offering expanded beyond that of OP Mainnet and may be on its way to flipping Arbitrum. In recent months, expansion on Base has slowed compared to the initial surge in USDC supply. Base is also among the most active users of stablecoins for microtransactions.
Base is also the largest host of USDC tokens after Ethereum, surpasses other L2. The base holds 3.16 billion USDC, compared to 2.57 billion on Solana. Ethereum still has a first-mover advantage with over 26 billion tokens. Base is also one of the few networks driving the adoption of the European-based EURC.
Arbitrum and Optimism together only house 1.6 billion USDC, with a prevalence of USDT and other niche tokens. Base also has the advantage of native tokens with lower fees and no need to switch back to the Ethereum version.
Cryptopolitan reporting by Hristina Vasileva
