FameEX Hot Topics | Amid Economic Uncertainty, USDT Market Share Soars While USDC Shrinks

In the past year, there has been a notable shift in the market dominance of stablecoins pegged to the United States dollar. Circle's USD Coin (USDC) has experienced a decline in market share, dropping from 34.88% to 23.05%. On the other hand, Tether's USDT has seen significant growth, with its market dominance increasing from 47.04% to 65.89%. This shift can be attributed to the regulatory crackdown on cryptocurrencies in the United States.

Circle CEO Jeremy Allaire acknowledged the regulatory environment in the United States as a contributing factor to the declining market capitalization of USDC in an interview with Bloomberg. Conversely, Tether appears to have benefited from the current situation in the US, with its market capitalization surging to $83.1 billion, while USDC's market cap has fallen from a peak of $55 billion to $29 billion.

USDC faced a challenge in March when it depegged from the dollar due to the US banking crisis. Reserves worth $3.3 billion were trapped at Silicon Valley Bank, one of the three crypto-friendly banks shut down by regulators. Despite Circle's reassurances, the market reacted swiftly to the news.

Stablecoins have gained popularity as they bridge the gap between the cryptocurrency space and traditional finance. However, a recent report from the European Systemic Risk Board emphasized the need for increased transparency in the stablecoin market, particularly regarding the reserves backing these digital assets.

Tether has faced criticism, especially for its lack of transparency. The Hong Kong-based company, owned by iFinex, was fined $18.5 million in 2021 by the New York Attorney General's Office for allegedly misrepresenting the fiat backing of its reserves. To address these concerns, Tether has been working on enhancing financial transparency.

In an effort to reduce exposure to the banking system after the collapse of Silicon Valley Bank, Tether's latest audit report reveals that it withdrew over $4.5 billion from banks in Q1 2023, resulting in a substantial reduction in counterparty risk. Tether has also increased its holdings of US Treasury bills to over $53 billion, constituting 64% of its reserves. The report states that USDT is now backed by 85% cash, cash equivalents, and short-term deposits.

Circle has also taken steps to mitigate risks amidst macroeconomic uncertainty. The stablecoin operator adjusted its reserves and no longer holds Treasurys maturing beyond early June.

As stablecoins continue to evolve and play a crucial role in the cryptocurrency ecosystem, regulatory scrutiny, transparency, and risk mitigation will remain important factors influencing their market dynamics. Stakeholders will need to address these concerns to ensure the stability and trustworthiness of stablecoins in the future.

Disclaimer: The information provided in this section is for informational purposes only, doesn't represent any investment advice or FameEX's official view.