Key points

• USDT off-ramping continued, with proceeds retained in U.S. dollars.
• Zerocap reported a third consecutive week of substantial USDT exits.
• USDT and USDC supply declined by a combined $2.12 billion.
• Circle’s reserve return was 3.48% in the second quarter, with the income retained by the issuer.

Cash, not coins

Zerocap, a Melbourne-based digital asset firm providing trading, liquidity and custody services to institutional and wholesale investors, reported another week in which clients moved away from stablecoins and into cash. The firm is registered with Australia’s financial intelligence agency, AUSTRAC, as a digital currency exchange.

Oliver Davis, an OTC trader at Zerocap, wrote that USDT experienced “another pronounced off-ramping week as risk appetite deteriorated.” The proceeds moved almost one-for-one into U.S. dollars, which clients retained. The weaker risk appetite followed a sell-off in technology shares that also weighed on other risk assets.

In its October 26 weekly market wrap, Zerocap said clients showed little interest in trading crypto assets directly. Bitcoin and Ether traded in small volumes without a clear direction, while Solana and XRP attracted only isolated interest. Stablecoins and foreign exchange accounted for most of the desk’s activity.

Within foreign exchange, U.S. dollars were significantly net bought, while AUDD, an Australian dollar stablecoin, was again significantly net sold. The desk’s reported flows consistently favored dollars.

Three weeks of USDT exits

The sequence of weekly reports indicates a change in how clients have reduced stablecoin exposure. Earlier in October, clients leaving USDT were still moving funds into USDC. Zerocap’s October 20 report also said clients were using AUDD as a local route into dollar-denominated stablecoins.

That was also the week when the European Banking Authority classified USDC as the first “significant” e-money token under the European Union’s MiCA rules, bringing its reserves and liquidity under the regulator’s direct oversight.

By the latest reporting week, buying of USDC had faded to a balanced level, while the proceeds moved into ordinary dollars. Clients had shifted from switching between stablecoins to exiting stablecoins altogether.

Crypto’s waiting room is losing tenants

Stablecoins commonly serve as a temporary holding place for crypto capital. A Kansas City Federal Reserve briefing estimated that 48.8% of stablecoins are held as trading assets, including capital parked between trades, compared with 0.7% used for payments.

Zerocap’s clients did not leave their capital in that temporary holding area during the latest week. Instead, they moved it outside crypto-related rails. Zerocap does not disclose the size of its flows, so its desk data cannot establish what the broader market did. However, DeFiLlama supply data, checked on October 26 at 12:17 UTC, showed a similar direction:

Together, the two largest dollar stablecoins lost $2.12 billion in supply over seven days. USDC’s percentage decline was more than twice USDT’s, even though Zerocap’s own USDC flows were balanced. The broader market data therefore does not describe a USDT-only reduction.

The two types of data measure different things. When a trading desk transfers a client’s USDT to another buyer, the tokens remain in circulation. Supply declines only when the issuer redeems the tokens. Desk flows and supply data are separate indicators, but in this case both pointed toward reduced stablecoin exposure.

Why stablecoins can be costly to hold while waiting

Every dollar backing a stablecoin generates interest, but the issuer retains that income. Circle, the issuer of USDC, reported a 3.48% reserve return rate in the second quarter of 2026, according to its SEC filing. Reserve income represented about 95% of Circle’s revenue during the quarter.

In the United States, the GENIUS Act prohibits payment stablecoin issuers from paying holders interest merely for holding the tokens.

At a 3.48% reserve return, $1 million held in stablecoins generates approximately $34,800 annually for the issuer. A holder who keeps funds in the token rather than in cash forgoes that potential return unless a platform shares it. The difference becomes more relevant when interest rates remain elevated.

Zerocap’s desk expects the Federal Reserve to maintain its policy rate within a range of 3.75% to 4.00% at this week’s meeting. A BIS working paper by Rashad Ahmed and Iñaki Aldasoro, based on weekly U.S. data from January 2019 through June 2025, found that higher bank deposit rates predicted slower stablecoin growth. The relationship was stronger for USDC than for USDT, consistent with the view that deposit rates can compete with stablecoin balances.

Zerocap did not say whether its clients’ dollars earn interest or give a reason for choosing cash beyond the deterioration in risk appetite.

What could bring the money back

Zerocap identified this week’s Federal Reserve decision on Wednesday and earnings reports from Alphabet, Microsoft and Amazon as the next tests for risk appetite. In the meantime, Zerocap strategist Emir Ibrahim said that for crypto holders, it is “a better moment to look at protective structures than to sell outright.” The desk is offering principal-protected notes with 85% capital protection and 103% upside participation.

If funds return to crypto markets, the first indication would likely appear on desks such as Zerocap’s, with dollars flowing back into stablecoins before other crypto assets. For now, Zerocap’s clients have chosen cash.

This article is provided for informational purposes only and does not constitute financial or investment advice.

Source: Coindoo.