Regulatory factors intensify changes in the stablecoin market

After the crypto asset market has experienced a round of explosive growth, the stablecoin market has subsequently expanded to hundreds of billions of dollars, making it difficult for this special category of crypto assets not to be paid attention to by regulation.

In recent months, US regulators have repeatedly mentioned that they will develop a regulatory framework for stablecoins to improve financial stability. In this context, USDC ’s issuer Circle took the lead and announced on August 22 that it would convert reserves into a combination of cash and short-term US Treasury bonds.

Compared to the reserve portfolio announced in July that includes cash, U.S. Treasury bonds, Yankees certificates of deposit, commercial paper and bonds, Circle intends to increase the liquidity and stability of USDC reserves. In contrast, although USDT , the leader in the stable currency market, has improved the transparency of its reserves, according to its issuer Tether’s reserve portfolio announced in May, there are only 3.87% of cash deposits, and the overall fund reserve is slightly inferior to USDC.

In the past few years, USDT’s market monopoly has been eroded by latecomers. According to the data of the non-small account on August 25, the current USDT circulation is 65.793 billion, accounting for 57.83% of the market share, and the USDC circulation is 26.987 billion, accounting for 23.72% of the market share. BUSD, a compliant stablecoin issued by Binance, also gained 10.7% of the market share with a circulation of 12.173 billion. In May of last year, USDT’s market share exceeded 80%.

Latecomers such as regular release of audit reports and USDC, which emphasizes openness and transparency, have grasped the pain points of the opacity of USDT’s long-term reserves, gradually expanded the market scale, and have gained the support of more and more users and platforms . With the advent of the era of stable currency supervision, the changes in the stable currency market may also intensify. Under the change of ranking, this market is expected to change from disorder to order.

U.S. releases stable currency regulatory signal USDC to reorganize reserves

With the growth of the encrypted asset market, the scale of the issuance of stablecoins has become larger and larger. According to the data of the non-small account on August 25, the current circulating market value of all stablecoins exceeds 110 billion U.S. dollars, and the top two USDT and USDC are both ranked in the top ten of the crypto asset market value rankings.

This market of more than 100 billion U.S. dollars has attracted the attention of various countries’ supervision, especially the US regulators have discussed several times to propose a supervision plan for stablecoins.

About a week ago, the Federal Reserve announced the minutes of its July meeting. Officials focused on discussing the potential threats that stablecoins might pose to financial stability. Participants said that stablecoins seem to have the same vulnerabilities as major currency funds and generally lack transparency. It is particularly important to monitor them closely. An appropriate regulatory framework needs to be developed to address any financial stability risks associated with such products.

Earlier, Fed Chairman Powell also publicly stated the urgency of monitoring stablecoins. “Currently, bank deposits and money market funds have a very strong regulatory framework, but stablecoins do not.”

The regulatory signal released by the Federal Reserve has aroused the vigilance of stablecoin issuers. On August 22, USDC issuing agency Circle announced that it would convert all USDC reserves into cash and short-term U.S. Treasury bonds. This move is obviously intended to convey to the outside world that the reserves behind USDC have sufficient stability and liquidity to ensure that it can be redeemed in the market at any time.

In contrast, the previous USDC reserve portfolio was much more complicated and its stability was also weak. In the USDC reserve report released by Circle in July, in addition to cash and U.S. Treasury bonds, USDC’s $22 billion reserve includes Yankee certificates of deposit (13%), commercial paper (9%), corporate bonds (5%), and municipal Bonds and US agency bonds (0.2%).

After the disclosure of the reserve fund report at that time, it caused some concerns from the outside world. Some people believe that the commercial paper, bonds and other assets in the reserve fund are highly volatile and lack liquidity, making it difficult to cope with large-scale redemptions.

Today, the change in the form of USDC reserves shows Circle’s caution in the context of regulatory tightening. And USDT, the largest leader in the stable currency market, has also deliberately increased the transparency of reserves this year to dispel long-standing doubts in the market.

In the first quarter of this year, Tether, the issuer of USDT, cooperated with accounting firm Moore Cayman to publish a third-party accounting verification report. The report shows that as of March 31, 2021, the combined total assets of USDT reserves were at least US$41.017 billion, while its combined total liabilities (market value of USDT issued) at that time was US$40.868 billion. The report proves that there are sufficient reserves behind USDT.

Regulatory factors intensify changes in the stablecoin market

USDT Reserve Audit Report issued by Moore Cayman

In May, Tether disclosed the distribution of reserve assets. Among the assets held by the company, 76% are cash and cash equivalents, of which 65.39% are bulk commercial papers and 24.2% are trust deposits. The cash deposits that the outside world is most concerned about account for only 3.87%; the remaining 24% is composed of credit loans, bonds, and other investment targets including cryptocurrencies.

Compared with USDC’s conversion of reserves into cash and U.S. Treasury bonds, the combination of USDT’s reserves is much more complicated, with greater volatility and less liquidity. At the level of competition between transparency and the form of reserves, USDC has the upper hand.

Stablecoin market share changes again, USDT gradually loses its monopoly position

Regulatory authorities formulate a regulatory framework around stablecoins, which is a protection for market investors. For stablecoin issuers, the intervention of supervision will put forward higher compliance requirements, which is likely to become an important factor in aggravating changes in the stablecoin market.

In the past few years, as the stablecoin market has grown, its market share has also quietly changed. Before 2018, the stablecoin market was almost the only one in USDT, occupying more than 90% of the market share. However, due to the lack of transparency of the reserves, the outside world has never stopped questioning USDT. Later, PAX, TUSD, USDC and other more transparent and compliant stablecoins came out, and the stablecoin market began to change.

In October 2018, Circle and Coinbase announced the establishment of the Centre alliance, launched the USDC, and the accounting firm Grant Thornton LLP released monthly reserve reports. With the advantages of transparency and the adoption and endorsement of Coinbase, USDC has begun its path of catching up.

It is undoubtedly difficult to challenge the king of a field, but the biggest advantage of USDC has always been auditing and more transparency. In 2019, USDT was caught in a lawsuit involving illegal misappropriation of US$850 million in reserves to sister company Bitfinex. The credibility continues to decline. USDC seized the opportunity and began to be listed as secured assets by multiple DeFi lending agreements, and at the same time it was listed on exchanges such as FTX and Binance. The market demand continued to increase.

Although USDT is still the most circulating stablecoin in the current market, its market share has gradually been eroded in the past few years.

According to the data of the non-small account on August 25, the current USDT circulation is 65.793 billion, accounting for 57.83% of the market share, and the USDC circulation is 26.987 billion, accounting for 23.72% of the market share. BUSD, a compliant stablecoin issued by Binance, also gained 10.7% of the market share with a circulation of 12.173 billion.

You know, in May last year, USDT’s market share exceeded 80%, when USDC’s market share was only about 7.5%. At this time, USDT’s “dominant family” status is no longer guaranteed, and the rapid growth of USDC is threatening it.

Regulatory factors intensify changes in the stablecoin market

The current proportion of stable currency circulation

For a long time, USDC has been promoting its advantages of transparency and compliance, and it has begun to be adopted by more and more encrypted assets and blockchain application platforms. The perpetual contracts of the decentralized derivatives exchange dYdX are priced in USDC instead of USDT. In May of this year, when the Chinese regulatory authorities began to crack down on Bitcoin trading and mining, the OTC price of USDT also fell for a while. At that time, someone proposed to change USDT to USDC to avoid risks.

Nowadays, the U.S. regulatory agency has clearly proposed that it will strengthen the supervision of stablecoins, which of course is more beneficial to the USDC, which is following the compliance route. As a latecomer to this market, USDC has obviously learned a lot of lessons from USDT. It has always used openness and transparency as its killer, and it has constantly taken market share from USDT.

From the perspective of investors, whether it is the establishment of a stablecoin regulatory framework or the increasingly fierce competition between stablecoins, it will ultimately help the market change from disorder to order, thereby protecting the interests of investors.


Posted by:CoinYuppie,Reprinted with attribution to:
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