USD Coin's Rise Threatens Tether's Stablecoin Supremacy Amid Regulatory Shifts
Summary:
Tether's dominance in the stablecoin market is challenged by the rising popularity of USD Coin (USDC). As of April 2024, USDC's transaction volume dramatically increased, while USDT's trended down. USDC's compliance and transparency, coupled with an institutional preference for the stablecoin, might affect USDT's market position. Furthermore, upcoming regulation frameworks in the US and Europe could favor USDC if Tether doesn't address its offshore establishment and perceived lack of transparency.
Tether's (USDT) reign as the premier fiat-based stablecoin has been challenged in recent years by new market entrants. The popularity of USD Coin (USDC), launched by financial technology company Circle, has soared since 2024. Visa reports that in December 2023, USDC surpassed USDT in monthly transactions, an upward trend that continued into 2024. As of April 21, 2024, USDT's weekly transaction volume had dropped to $89 billion, while USDC jumped to $455 billion.
Despite its foundation only six years ago in 2018, USDC now controls 20% of the total stablecoin market. A January 2024 report by digital asset exchange OKX identified USDT and USDC as the dominant players in the stablecoin industry, collectively accounting for 90% of the market.
USDC appears to be outperforming USDT in attracting institutional crypto adoption. This poses a potential threat to USDT's prevalent position as institutional investors are anticipated to be key drivers of the bull market.
The evolution of the crypto market has seen it transition from an environment rife with fraudulent Initial Coin Offering (ICO) schemes to one ready to welcome significant institutional investment, following the authorization of spot Bitcoin exchanged-traded funds earlier this year. Former Binane CEO, Changpeng Zhao, suggested on May 2 that the crypto market has entered a "new phase" in which "compliance is paramount."
As such, transparent and compliant stablecoins are likely to attract the influx of investors entering the crypto market. Tether, based in the British Virgin Islands, a known offshore financial haven, has a history of skepticism regarding the trustworthiness of its reserves, contrasting with US-based Circle, the issuer of USDC.
If Tether wishes to retain its competitive edge, it needs to address its transparency and regulation issues and embrace the regulatory emerging landscape in the United States and Europe. The Payment Stablecoin Act introduced by the US Congress on April 17 could impact all US market stablecoins. In Europe, the upcoming Markets in Crypto-Assets regulation will mandate stablecoin issuers to register as e-money issuers starting from June 30.
In light of these developments, Circle is strategically positioning its EURC, a version of USDC pegged to the euro, and applied for a Digital Asset Service Provider license from French regulators on March 21, 2023. Tether, on the other hand, has not yet sought to become an e-money issuer in the EU.
Tether should not overlook the solidifying position of USDC in the transaction volume. If this becomes a standard, Tether could lose its stablecoin supremacy.
Published At
5/3/2024 4:01:00 PM
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