Many cryptocurrency investors are shifting away from Circle’s USD coin (USDC) stablecoin and moving towards Tether, whose market share has recently surged to a 22-month high.
Since March 10, when regulators shut down Silicon Valley Bank, a crucial reserve banking partner, USDC token net outflows have exceeded $10 billion. Despite the collapse of SVB, the U.S. payments firm Circle has managed to survive, and its stablecoin USDC has managed to regain the dollar price peg it lost in the initial aftermath. But, the token’s market valuation has decreased by 23% from its all-time high of $43 billion, according to crypto price tracker CoinGecko.
During a period of intensifying regulatory scrutiny and vulnerability within the banking sector, the decline of USDC has occurred within the stablecoin industry. Among other stablecoins, Binance’s BUSD token has also dropped.
With a market valuation of $33 billion, USDC is still the second-largest stablecoin. Circle supports the token’s value through cash reserves and short-term government bonds managed by the investment management company BlackRock. According to the company, “substantially all” of Circle’s cash has been transferred to BNY Mellon, one of the world’s major custodian banks, although “limited funds” remain with other partners.
Beginning on March 10, outflows accelerated as SVB crumbled, locking $3.3 billion in cash reserve deposits in its vaults for many days until government intervention. The occurrence threw the stablecoin market into disarray as USDC and other stablecoins momentarily lost their price peg while also highlighting the reliance on fiat-backed stablecoins on the health of existing financial systems.
Within the previous week, investors have redeemed $1.5 billion more USDC than was issued, including the collapsed crypto broker Voyager, which redeemed $150 million on Tuesday. As the USDC price is fixed at $1, a reduction in the token supply implies that investors have traded their USDC tokens for U.S. dollars. Net outflows are the result.
Earlier this month, in a report, Enigma Securities, a digital asset brokerage, stated that while USDC had survived the battle, it was still uncertain whether it would emerge victorious in the war.
The Surging Dominance Of Tether’s Stablecoin
The largest share of investors has migrated to the market’s leading stablecoin, Tether’s USDT, causing its dominance to surge to its highest level since May 2021.
USDT is a crucial component of the crypto ecosystem’s underlying infrastructure and is commonly used to facilitate trade on exchanges. Its issuer, Tether, has been subject to scrutiny over its reserve assets and lack of transparency for years, but investors appear to be less concerned about these matters as of late.
Since February, when New York regulators forced stablecoin issuer Paxos to stop minting the third-largest stablecoin, Binance USD (BUSD), the $132 billion stablecoin market has been undergoing a dramatic reshuffle. The BUSD supply has dropped below $8 billion from $16 billion at the beginning of February.
In its March market analysis, CryptoCompare stated that USDT benefited from BUSD’s retreat and USDC’s decline.
According to DefiLlama, USDT’s market valuation has increased by $8 billion to $79.5 billion since March 10, and it enjoys a 60% market share among stablecoins. May of 2021 was the last time USDT had such a huge stake.
Last week, Jeremy Allaire, the CEO of Circle, tweeted that it was ironic that the players with a strong foothold regarding regulation and integration with the U.S. banking system were now considered ‘unsafe’ and that there was a risk of assets being stranded. He further stated that market participants were moving towards platforms with no oversight, opaque bank and risk exposures, and a history of lax financial risk and integrity controls.
In an interview with CNBC, Paolo Ardoino, chief technology officer of Tether, stated that USDT has approximately $1.6 billion in excess reserves and that the stablecoin issuer is on target to record a $700 million profit in the first quarter.
One stablecoin, trueUSD (TUSD), has gained attention due to Binance’s promotion of TUSD as an alternative to BUSD and the token’s increased trading volume. The market capitalization of TUSD has increased from less than $1 billion to $2 billion, making it the fifth-largest stablecoin.