Tether's USDT is experiencing its sharpest supply contraction since the weeks following the FTX collapse in December 2022. As of February 20, 2026, the total circulating supply of the world's largest stablecoin has fallen approximately 1.7% over the past month, with market capitalization sliding from roughly $187 billion in early January to $184.3 billion, according to data tracked by Artemis Analytics and reported by Bloomberg.
The contraction follows two massive token burns: 3 billion USDT destroyed in January and another 3.5 billion in February, marking the two largest consecutive monthly burns in Tether's history. Together, the $6.5 billion removal represents a structural shift, not a momentary blip.
The Largest Consecutive Burns in Tether History
When Tether "burns" USDT, it is removing tokens from circulation after users have redeemed them for fiat currency. The process works in reverse to minting: holders send USDT back to Tether, receive dollars, and the corresponding tokens are permanently destroyed to maintain the 1:1 reserve peg.
The January burn of 3 billion USDT already raised eyebrows. When February's 3.5 billion followed, the pattern became unmistakable. CryptoQuant's 60-day average USDT Market Cap Change metric turned negative in February for the first time since Q3 2023, a period that preceded a prolonged bear market for many altcoins.
For context, the December 2022 post-FTX contraction saw roughly $8 billion flow out of USDT over several weeks as confidence in centralized crypto platforms cratered. The current decline is smaller in absolute terms but arguably more significant because it is happening during what most participants would describe as a functioning, non-crisis market.
Why Capital Is Leaving USDT
Three forces are converging to push capital away from Tether's flagship stablecoin.
Regulatory rotation. The stablecoin regulatory landscape has shifted dramatically. In the United States, the GENIUS Act framework has created a new category of federally supervised "permitted stablecoins" that must meet strict reserve requirements, undergo regular independent audits, and provide real-time transparency into asset composition. Institutional investors, exchanges, and payment rails are increasingly gravitating toward these compliant alternatives. This is not hypothetical: ProShares launched IQMM, the first ETF specifically designed for GENIUS Act stablecoin reserves, signaling that Wall Street infrastructure is being built around the new standard.
S&P stability downgrade. S&P Global cut Tether's USDT stability score to "weak," citing concerns about reserve composition and whether Tether's holdings could absorb a significant drop in Bitcoin's price. While Tether has published quarterly attestation reports showing a mix of US Treasuries, money market funds, and other assets, the S&P downgrade reflects growing institutional skepticism about the transparency gap compared to fully regulated competitors.
European MiCA compliance. Under the EU's Markets in Crypto-Assets regulation, stablecoins operating in Europe must meet specific licensing and reserve requirements. Tether has faced persistent questions about its MiCA compliance posture, and some European exchanges have already delisted or restricted USDT trading pairs. This regulatory pressure is particularly relevant for the European crypto card ecosystem, where stablecoin-funded cards often rely on USDT as a primary balance currency.
The $187 Billion to $184 Billion Slide in Numbers
The decline, while headline-grabbing, needs context. USDT remains by far the dominant stablecoin with roughly 62% market share, down from a peak of around 71% in 2023. Circle's USDC has been the primary beneficiary of the rotation, with its market cap climbing steadily as institutions seek regulatory clarity.
Here is how the current contraction compares to previous USDT drawdowns:
- December 2022 (post-FTX): roughly $8 billion outflow over 4-6 weeks, driven by pure panic and platform insolvency fears
- January 2023 (MiCA concerns): approximately $4 billion outflow as European compliance questions first surfaced
- February 2026 (current): approximately $2.7 billion outflow (January + February combined decline), driven by structural regulatory rotation rather than crisis
The current decline is smaller but potentially more durable. Panic-driven outflows tend to reverse when fear subsides. Regulatory-driven capital rotation tends to be stickier because the compliance infrastructure, once built for a competing stablecoin, does not easily switch back.
What This Means for Crypto Card Users and DeFi
For anyone holding or spending crypto through card products, the USDT contraction has several practical implications.
Funding flexibility matters. Cards that accept only USDT as a funding source face concentration risk if the stablecoin rotation accelerates. Products like the Bybit card and several custodial exchange cards that historically defaulted to USDT may need to expand their stablecoin support. Cards that already accept both USDT and USDC, such as RedotPay and KAST, are better positioned for a multi-stablecoin future.
DeFi liquidity shifts. Protocols with deep USDT pools on Ethereum, Tron, and Solana could see liquidity thinning if the rotation continues. This affects everything from swap execution to lending rates. Users who rely on stablecoin yields through staking products or DeFi protocols should monitor whether their preferred pool's USDT depth is holding steady.
Conversion spreads. As USDT liquidity fragments, the hidden cost of converting USDT to fiat at the point of sale could widen slightly. Most crypto card processors absorb a 0.5-0.9% Visa/Mastercard network spread on top of disclosed fees. If the underlying stablecoin's liquidity depth weakens, that spread can creep higher without appearing on any fee schedule.
The Bigger Picture: Stablecoin Market Maturation
The USDT contraction is happening alongside broader stablecoin market growth, which is a critical distinction. Total stablecoin market capitalization continues to expand. The capital leaving USDT is not leaving stablecoins entirely: it is redistributing toward alternatives perceived as more transparent, better regulated, or simply more aligned with institutional compliance requirements.
This is, paradoxically, a sign of market maturation. The stablecoin sector is evolving from a single-dominant-player model toward a multi-issuer ecosystem where regulatory posture matters as much as liquidity depth. The White House stablecoin yield discussions and the ProShares IQMM launch both point toward a future where the line between stablecoins and traditional banking products blurs further.
Tether is unlikely to disappear. With $184 billion in circulation and deep liquidity across virtually every exchange and chain, USDT remains the default settlement currency for most of the crypto economy. But its dominance is eroding at the margins, and the current 1.7% monthly contraction, the largest since a full-blown industry crisis, suggests the erosion is accelerating.
FAQ
How much USDT has Tether burned in 2026? Tether burned approximately 3 billion USDT in January and 3.5 billion USDT in February 2026, totaling $6.5 billion. These are the two largest consecutive monthly burns in the stablecoin's history.
What does a USDT burn mean? A burn occurs when USDT holders redeem their tokens for fiat currency. Tether destroys the returned tokens to maintain a 1:1 ratio between circulating supply and reserves. Burns indicate net capital outflows from USDT.
Is USDT losing its peg? No. USDT has maintained its dollar peg throughout the current contraction. The decline is in total supply (fewer USDT in circulation), not in the price per token. At the time of writing, USDT trades between $0.999 and $1.001.
Should I switch from USDT to USDC? Neither stablecoin is risk-free. USDC offers more regulatory clarity under US frameworks, while USDT offers deeper global liquidity. Many crypto card providers now accept both. Diversifying stablecoin holdings across issuers reduces single-issuer risk.
How does this affect crypto card balances? If you fund a crypto card with USDT, your balance is not affected by supply changes as long as the peg holds. The practical risk is that USDT liquidity thinning could slightly widen conversion spreads at the point of sale over time.
Overview
Tether's USDT supply has contracted 1.7% in February 2026, its sharpest monthly decline since the FTX collapse in December 2022. Two consecutive record burns totaling $6.5 billion, an S&P stability downgrade, and regulatory-driven capital rotation toward permitted stablecoins are reshaping the market. While USDT remains dominant at roughly $184 billion in circulation, the structural nature of this decline, driven by compliance rather than panic, suggests the stablecoin landscape is entering a permanent multi-issuer phase. Crypto card users should ensure their preferred products support multiple stablecoin funding options and monitor conversion spreads as liquidity dynamics shift.
Recommended Reading
- ProShares Launches IQMM, the First Money Market ETF Built for GENIUS Act Stablecoin Reserves
- The White House Confiscated Phones to Force Banks and Crypto Into a Stablecoin Yield Deal, and Both Sides Blinked
- The European Parliament Just Backed the Digital Euro by 443 Votes, Setting Up a 2027 Pilot and 2029 Launch
