Cryptocurrency analysis firm Glassnode says in a new report that while many Ethereum (ETH) investors are at a loss, capital is generally flowing into stablecoins.

   “The total capitalization of the four largest stablecoins (USDT, USDC, BUSD, and DAI) has already exceeded the market cap of Ethereum by $3.0 billion. The total value of the top four stablecoins has previously exceeded 50% of the market cap of Ethereum many times over the course of 2020-22. However, in May and June this year, stablecoins saw a dramatic increase in market capitalization. This is the first time something like this has happened.”

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The report also explains the interest in such stablecoins in the ETH ecosystem as follows.

   “The dramatic rise of USD stablecoins as a unit of account and a quoted asset. The strong demand for liquidity in dollar terms in recent years. (We see that the top three of the top six digital assets by market cap are now stablecoins.) Major depreciation in the Ethereum ecosystem throughout 2022.”

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While not every stablecoin operates on Ethereum, Glassnode states that market participants generally take a risk-averse approach, according to the data.

   “This event explains to us why leverage ratios fall as the disparity between the value of crypto collateral and the unit of account of margin debt (USD stablecoins) grows.”

The firm assesses the relationship between the recent drop in Ethereum price and the largest unrealized loss recorded by most of the token holders in nearly four years.

   “ETH spot price is currently around $1,212 (price at the time of writing) and the overall market is well below the currently realized price of $1,730. This means that the market is holding an average unrealized loss of --30.0%. The Net Unrealized Profit/Loss (LTH-NUPL) metric of long-term investors shows that investors in this group have lowered their current profitability, equalizing the profit and loss ratio, and currently have unrealized losses corresponding to 23% of market cap. “This means that even the strongest and longest-standing ETH traders are now on average at a loss in their positions. The most recent example of this was in September 2018, when the price of ETH dropped 64% from $230 to $84 in the capitulation process.”

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Glassnode concludes its analysis by referring to historical cryptocurrency cycles where early innovation brought both price increases and leverage.