USDC is chasing USDT, the market pattern of stablecoins is quietly changing

In the past two months, all the signs in the crypto market have damaged investor confidence: the collapse of the Terra stablecoin UST, the run on the cryptocurrency lending platform Celsius, the crypto hedge fund Three Arrows Capital is facing a crisis, and so on.

As the prices of various Tokens plummet, cryptocurrencies are entering a new round of cold winter. Under the general bearish sentiment, in order to avoid losses, investors are more willing to convert part of their gains in the bull market into stablecoins to survive this difficult crypto bear market. At this time, the two major stablecoins in the crypto market, Tether (USDT) and US Dollar Coin (USDC), performed very differently.

USDC is chasing USDT

According to CoinGecko, since the beginning of May, the market value of Tether has fallen by 19% from the historical high of $83 billion; in contrast, USDC has risen by 5% during the same period, and the market value once exceeded $56 billion, setting a new record high. It is not difficult to see from this set of data that the supply of Tether is continuing to shrink, and large investors have been cashing out their USDT positions since the market crash, while the supply of USDC has continued to expand as demand increases.

I have to admit that USDC has performed strongly during the bear market. In the past 50 days, USDC has broken through a new high of issuance 28 times. On June 15, the market value gap between USDC and Tether has narrowed to about $12 billion, the closest since the fall of 2020.

In the case of Tether’s declining market value, USDC’s market value only needs to increase by another 21% to surpass Tether, and this growth rate does not seem to be too difficult for USDC. If Tether continues its downward trend, USDC will catch up faster. All of this seems to be a very serious warning to us: in the current crypto bear market, no asset can sustain its dominance, no matter how good.

USDC is chasing USDT, and the stablecoin market pattern is quietly changing

What’s wrong with Tether?

Typically, investors use stablecoins such as Tether and USDC as a medium of exchange to exchange with other cryptocurrencies, especially when the U.S. dollar is unavailable or traded on DEXs such as Uniswap. Frankly speaking, stablecoin transactions often account for a large part of the crypto market trading volume. If calculated by market value, the current stablecoin trading volume even exceeds the total trading volume of BTC, ETH, and even the other top ten tokens.

However, since the beginning of May, the circulating supply of Tether (this indicator only counts USDT in circulation among ordinary investors, excluding private sales or tokens held by companies) has decreased by nearly 15 billion. Especially in the second week of May, when Terra began to collapse, various stablecoins were hit, and USDT was once decoupled from the U.S. dollar, there was a large-scale panic in the market. As a result, Tether holders cashed out nearly 7 billion in value. USD stablecoin.

In fact, the run on investors seems to show a loss of confidence in the recovery of the cryptocurrency market, and even investing in assets such as stablecoins looks like a risky move. However, Tether CTO Paolo Ardoino explained the market situation from another angle. He publicly stated that the run on the other hand shows that the company is capable of handling such redemptions. And since then, Tether has cashed out another roughly $8 billion to investors.

USDC is chasing USDT, and the stablecoin market pattern is quietly changing

Of course, Tether still has some controversies. For example, Tether recently transferred $4.5 billion to its affiliated trading platform Bitfinex, but it is still doubtful whether the corresponding Tether stablecoins have been destroyed. Eliminate, or transfer directly to Bitfinex.

A Tether spokesperson said that in the first 24 hours of June 22, the Tether stablecoin traded as high as $48 billion, while the USDC traded only about $5 billion. From this perspective, Tether is more practical, although The market value has declined, but in fact it just proves that the Tether reserve can fully meet the demand for liquidity redemption. The spokesperson also said that Tether does not want to cater to the traditional banking industry, but wants to focus on becoming a liberalized tool for P2P transactions, remittances, and hedging inflation, which is why Tether’s market value has been redeemed by cash in the past few weeks. reasons for the decline. Overall, even though the market value of USDT has fallen, the 24-hour trading volume is still more than 9 times higher than that of USDC.

Will USDT and USDC de-pegg from the US dollar?

Although USDT and USDC have a long-term competitive relationship, it does not prevent them from firmly occupying the market dominance in the stablecoin team. According to CoinGecko historical data, on June 15, the total market value of the two stablecoins accounted for 79% of the total stablecoin market value ($155 billion), and the market value of the third-largest stablecoin Binance USD (BUSD) was 17 billion. Dollar.

At the beginning of 2022, the market value of Tether was about 78 billion US dollars, which was almost twice the market value of USDC at that time, but then the gap between the market value of USDT and USDC began to narrow. In terms of market value, these two stablecoins are currently second only to BTC and ETH. the third and fourth largest cryptocurrencies.

When Terra’s stablecoin, UST, was de-pegged from the U.S. dollar in early May, there was a rush to draw the line between algorithmic stablecoins such as UST and centralized stablecoins (backed by cash or cash-equivalent reserves, such as USDT and USDC). At the time, Tether co-founder Reeve Collins had said that Tether holders should feel very safe because Tether would remain pegged to the U.S. dollar and would not be affected by market volatility. Additionally, Reeve Collins said it wouldn’t be surprising to see holders of algorithmic stablecoins starting to switch to asset-backed tokens like Tether.

But even so, USDT still seems to be affected by the UST crash. Just two days after the collapse of UST, the market panic intensified, and Tether once fell to $0.95 before re-pegging to the US dollar at 1:1. On the same day, Circle’s chief strategy officer Dante Disparte published a blog post that appeared to ridicule the fact that Tether was “disguised as a stablecoin” when it wasn’t, writing:

“If you want to retain buyers with a 1:1 peg to the U.S. dollar, then you have to hold dollar-denominated and regulated high-quality liquid assets (called HQLA in banking parlance).”

It turns out that USDC did not fall below $0.99 and was very lucky to survive this stablecoin crisis caused by Terra. However, according to CoinGecko, just last Monday (June 13), the day after Celsius announced that it would freeze user accounts, USDC actually suffered a short-lived dollar decoupling problem, when the price once fell to $0.97. 

Also last week, Tether released a statement “with difficulty” refuting the so-called “reserve rumours,” or allegations that it invested its cash reserves in commercial paper. In September 2021, Tether attracted a lot of attention for investing most of its cash reserves in commercial paper (real estate developers Evergrande and Kaisa were rumored to be at risk of not being able to pay their dollar bonds last year – while Tether’s $69 billion cash reserves of which $30.6 billion is invested in such bonds).

But since then, Tether has decided to adjust its reserve strategy and said it will further reduce its commercial paper holdings. Commercial paper and bonds accounted for only about a quarter of Tether’s $82 billion in reserves as of March 31, 2022, the company’s accounting firm said in a report.

Not only that, but Tether’s statement last week also attempted to draw a line between Celsius and Three Arrows Capital. The statement said that Tether “has no interest in Celsius, nor has it provided loans to Three Arrows Capital, other than making small investments in the company’s net asset value. Tether has also been working to reach a consensus with its creditors that it is safe from the risk of liquidation. “

(As an aside: Three Arrows Capital co-founders Kyle Davies and Su Zhu have said they lost $200 million when Terra crashed in May. At its peak, Three Arrows Capital managed about $10 billion, but as of In April, its funds under management had shrunk to around $3 billion.)

The rapidly changing market has been warning USDT and USDC 

As of May 17, 2021, the gap between the market caps of Tether and USDC reached its largest since 2020, according to CoinGecko, when USDT’s market cap was $59 billion, nearly four times that of USDC ($17 billion). .

However, from May 2021, the crypto market began to enter a long period of turmoil, especially on May 23, 2021, the global crypto market fell by 9% in 24 hours.

To make matters worse, a spate of bad news followed that further hammered cryptocurrency prices: Tesla CEO Elon Musk announced the company would stop accepting bitcoin payments; top cryptocurrency exchanges including Binance and Coinbase The service was interrupted; domestic regulators began to completely shut down BTC mining operations everywhere.

When we go back to the week after May 17, 2021, which is May 23, 2021, we will find that Tether’s market cap has barely changed, but USDC’s market cap has increased by $4 billion. Although Tether remains the number one stablecoin, the market cap ratio of USDT and USDC has dropped from 4x to 3x in just one week.

Undoubtedly, Tether’s market capitalization has always been ahead of USDC before. However, the crypto market is changing rapidly, and no one can guarantee that they will be the winner forever, and the current reversal trend has indeed been revealed, and it is likely to continue.

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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