Stablecoins on a Rollercoaster: USDT Soars while USDC Descends
Over the past year, there has been a considerable shift in the market dominance of stablecoins pegged to the US dollar. While most are charting a downward course, Tether's USDT is gaining considerable traction, reaching its highest market dominance, according to CoinGecko data. On the other hand, Circle's USD Coin, USDC, has seen a drastic market share plunge from 34.88% to 23.05%.
Stablecoin Market Breakdown: Winners and Losers
Several other stablecoins have also been affected. Binance USD's market stake dropped sharply from 11.68% to a meager 4.18%, while Dai also lost some footing, its share declining to 3.66% from 4.05% in May 2022. Meanwhile, Tether's USDT has cemented its position, with its market dominance surging to 65.89%, a significant leap from 47.04% a year ago.
USDT and USDC: The Tale of Two Market Caps
Regarding market capitalization, USDT has seen a notable increase to $83.1 billion, a stark contrast to USDC, which has declined from its zenith of $55 billion to a worrying $29 billion. Circle's CEO Jeremy Allaire has attributed this declining capitalization to the US regulators' crypto crackdown.
The Blow of the US Banking Crisis on USDC
A major setback came for USDC in March following the US banking crisis, which led to its de-pegging as reserves worth $3.3 billion were stuck at Silicon Valley Bank, one of the three crypto-friendly banks shuttered by regulators. The market swiftly reacted to this crisis, resulting in USDC's de-pegging from the dollar.
Growing Popularity of Stablecoins Amidst Transparency Concerns
Stablecoins have grown in popularity due to the increasing intersection of crypto and traditional finance. However, a recent report from the European Systemic Risk Board underscores the need for greater transparency in the digital assets market, particularly for stablecoin reserves.
Tether's Struggles and Triumphs in the Face of Controversy
Despite facing severe criticism for lack of transparency and a hefty $18.5 million fine by the New York Attorney General's Office in 2021, Tether has fought against these adversities. Tether, seeking to reduce its banking exposure following the Silicon Valley Bank's collapse, pulled over $4.5 billion from banks in Q1 2023, leading to a notable reduction in counterparty risk during global economic uncertainty.
Stablecoins Resort to Asset Management Strategies Amidst Economic Uncertainty
To fortify its reserves, Tether has also bolstered its US Treasury bills to an impressive $53 billion, comprising 64% of its reserves. Now, USDT is backed by an 85% blend of cash, cash equivalents, and short-term deposits. In a similar maneuver, Circle has reportedly adjusted its reserves to mitigate risk against the prevailing macroeconomic uncertainty and has decided against holding Treasurys maturing after early June.