Unit 1 · Level 3 · Exchange & stablecoin flows
Dry powder
Stablecoins are the crypto market's cash pile, and unlike bank balances, you can watch them on-chain. Total stablecoin supply exploded from roughly $5B in early 2020 to over $180B by 2022's peak, shrank through the bear market, then grew again. The intuition: minting means new dollars entered the arena, burning means dollars left. Analysts call the pile 'dry powder': money sitting in crypto, not yet spent on crypto.
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What you get asked
Why is growing stablecoin supply read as potential buying power?
You don't mint USDC by accident: dollars came in the door. Whether they get spent on crypto is another question, but the ammunition exists.
Match each stablecoin event to its textbook reading
Minting and burning are the tide gauges of crypto's cash pile. Trends beat single prints: one giant mint is often a single market maker restocking.
When holders redeem stablecoins for bank dollars, the issuer ___ the tokens, shrinking supply.
Redemption destroys the token: dollars go out of the reserve, tokens go out of existence. Sustained burning marked the 2022 bear market clearly.
What's the honest caveat on the 'dry powder' story?
In many countries stablecoins are simply better dollars: used for remittances and savings, especially where local currency is weak. That supply isn't aiming at bitcoin.
Terra's UST collapse in May 2022 erased roughly $18B of 'stablecoin' value in days. What did it teach analysts?
UST's 'dollars' were conjured by a mechanism, not backed by reserves. The dry powder turned out to be a mirage. Always ask what stands behind the peg. 🐜
The rest of this unit
Follow the money on and off exchanges. Where coins sit tells you what holders plan.