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Stablecoin Market Shift: Tether Surges, USDC Struggles, Regulatory Impact Felt

Key Takeaways
  • Tether's USDT stablecoin has surged in market dominance, while Circle's USDC has declined
  • Tether now commands 65.89% market share and a $83.1 billion market capitalization, while USDC's market cap dropped to $29 billion
  • Tether has fortified its reserves by acquiring $53 billion in U.S. Treasury bills, comprising 64% of its total reserves
29-May-2023 By: Simran Mishra
Stablecoin Market Sh

Tether Strengthens Reserves with Over $53 Billion in U.S. Treasury Bills, Reinforcing Confidence in Stablecoin Market

In the past year, there has been a significant reconfiguration of market leadership within the stablecoin sector, specifically among cryptocurrencies pegged to the United States dollar. Noteworthy is the decline in market share of Circle's USD Coin (USDC), which has dropped from 34.88% to 23.05% as of the latest update. Concurrently, Tether's USDT has displayed remarkable resilience, reclaiming its previous peak and gaining considerable traction in the market.

During the 12-month period, other stablecoins also saw a decrease in their market participation. Binance USD, for instance, plunged from 11.68% to 4.18%, while Dai's share decreased from 4.05% to 3.66% as of May 2023.

In contrast, Tether's USDT has been on an upward trajectory, currently commanding a market dominance of 65.89% compared to 47.04% a year ago. This surge in market capitalization has propelled Tether's value to an impressive $83.1 billion, while USDC's market cap has dwindled from its peak of $55 billion to a mere $29 billion.

Circle's CEO, Jeremy Allaire, attributes USDC's declining market capitalization to the regulatory crackdown on cryptocurrencies in the United States. On the other hand, Tether seems to be benefitting from the current regulatory environment, leading to its growth in market share.

The USDC faced a significant setback in March when reserves worth $3.3 billion were trapped at Silicon Valley Bank. This bank, along with two other crypto-friendly banks, was forced to shut down due to regulatory actions. Consequently, the market responded swiftly, resulting in the depegging of USDC from the US dollar.

Stablecoins, due to their connection between the crypto space and traditional finance, have gained popularity. However, concerns regarding transparency in the digital assets market, particularly related to stablecoin reserves, have been highlighted by the European Systemic Risk Board in a recent report.

Tether has been subject to extensive criticism for its lack of transparency, leading to a $18.5 million fine imposed by the New York Attorney General's Office in 2021. As part of the settlement, Tether was required to enhance its financial transparency.

In response to these allegations, Tether's leadership has defended the company on Twitter. Moreover, Tether is actively seeking to reduce its exposure to the banking system following the closure of Silicon Valley Bank. Their latest audit report indicates that Tether withdrew over $4.5 billion from banks in the first quarter of 2023, resulting in a substantial reduction in counterparty risk amid global economic uncertainty

In a move to enhance trust and assurance, Tether has fortified its reserve by amplifying its ownership of U.S. Treasury bills, now surpassing $53 billion, accounting for a significant 64% of its total reserves. When combined with other assets, 85% of USDT is backed by cash, cash equivalents, and short-term deposits, according to the report.

Circle has taken similar steps to mitigate risks associated with macroeconomic uncertainties by adjusting its reserves. As a risk mitigation measure, they have decided not to hold Treasuries maturing beyond early June. 

Also read - Temasek Reduces Compensation for Execs Linked to $275M FTX Investment

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