Update (Feb. 21, 12:45 am UTC): This article has been updated to include comments from Tether.

Tether’s USDT, the world’s largest US dollar-pegged stablecoin, is heading for its steepest monthly supply decline in years as big holders step up redemptions, according to blockchain data.

The circulating supply of USDt (USDT) has fallen by about $1.5 billion so far in February, following a $1.2 billion decrease in January, according to Artemis Analytics data reported by Bloomberg. This puts USDT on track for its biggest monthly drop in three years, since the weeks following the collapse of cryptocurrency exchange FTX in November 2022.

The USDT supply logged a $2 billion decrease in December 2022 after the collapse of FTX and its 150 subsidiaries sent shockwaves through the crypto industry.

The current decline may signal a contraction in crypto market liquidity, as Tether’s USDT is the primary on-ramp for crypto investors. Its $183 billion market capitalization accounts for about 71% of the total stablecoin market, according to CoinMarketCap. 

In a statement, a Tether spokesperson rejected Cointelegraph’s framing. “The data being referenced reflects short-term changes in circulating supply, which requires context when analyzing,” the spokesperson said, noting that the study is based on 18 days of February data, which “do not establish a durable trend.”

For context, during the same period, USDC (USDC) saw a $4.6 billion decline (approximately 6%), the Tether spokesperson said. They also added that February data suggests the current changes in market cap are less about a shift in end-user adoption and more about exchange-level distribution dynamics.

“Short-term supply fluctuations should be viewed in the context of exchange programs and market structure, not as evidence of structural erosion in USDt’s position,” the spokesperson said.

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Total stablecoin market cap flat in February

The pullback in USDT has not translated into a broader contraction across dollar-linked stablecoins.

The total market capitalization of stablecoins across all exchanges has risen 2.33% so far in February, from $300 billion to $307 billion, according to DeFiLlama data.

While the two leading stablecoins, USDT and Circle’s USDC (USDC), decreased by 1.7% and 0.9%, respectively, the Trump-family-linked World Liberty Financial’s USD1 (USD1) stablecoin recorded a 50% increase in market capitalization over the past month and was valued at $5.1 billion as of Friday, according to DeFiLlama.

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Whales and smart money traders offload USDT, but fresh wallets stepping in

Whales, or big cryptocurrency investors, have been cutting their USDT holdings, but new participants are bringing fresh demand for the leading stablecoin.

Whale wallets sold $69.9 million USDT across 22 wallets over the past week, marking a 1.6-fold increase in the selling rate of this cohort, according to crypto intelligence platform Nansen.

The leading traders by returns, tracked as “smart money,” have also been net sellers of USDT. At the same time, new wallets created in the past 15 days bought about $591 million worth of USDT over the week, according to the platform.

The mixed flows highlight a market split between large holders redeeming or reallocating capital and new entrants stepping in to take the other side, even as overall stablecoin issuance remains broadly steady.

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