I just noticed that the USDT supply is decreasing significantly. Over the past two months, the circulating supply has dropped by nearly $2.7 billion, the largest decline since 2022. Previously, in February alone, it decreased by $1.5 billion, followed by a $1.2 billion drop in January. This is related to the tight liquidity conditions in the market right now.

But there are other factors also at play. Tether announced last week that they have frozen around $4.2 billion worth of USDT over the past three years, mostly since 2023. These funds are linked to criminal activities. The US Department of Justice recently requested Tether’s help to freeze nearly $61 million related to pig-butchering schemes. Turkey also requested action to freeze $544 million suspected of online gambling and money laundering.

What’s interesting is how stablecoin issuers are now becoming part of direct enforcement. Elliptic tracked that Tether and Circle have blocked around 5,700 wallets holding a combined $2.5 billion. Most of these addresses hold USDT. So now there’s a new combined demand and supply curve, where supply is influenced not only by usual market dynamics but also by regulatory actions.

Although the supply is decreasing, USDT remains very dominant. Currently, its flow has reached 189.76 billion tokens. So this isn’t about USDT losing its position, but more about how the market is adjusting to increased oversight from authorities. Tether says this decline is also related to shifts in short-term distribution, and USDC has experienced similar trends. Still, this trend is worth monitoring for traders like us.