The battle for stablecoins enters 2021 in a very different light than in the past few years, with USDT’s position on exchanges still solid, but its position in the DeFI market reversed by USDC, whose data shows that USDC is especially popular among DeFi users.
At the same time, stablecoins have become not only a tool for crypto users to reduce asset risk, but also an important and compliant medium for traditional financial market capital to enter the crypto and DeFi space.
Stablecoins have always been a focal track in the crypto market, playing an important role in the decentralized cryptocurrency space with relatively centralized mechanisms, especially in the trading and transfer scenario in centralized exchanges, helping users to reduce the volatility risk of their crypto assets and fix the returns.
The status of stablecoins has even been recognized by U.S. regulators. In January, the Office of the Comptroller of the Currency (OCC) of the U.S. Department of the Treasury announced in a document on its official website that it would allow U.S. banks to use U.S. dollar stabilized coins for payments and settlements. The document said that banks may be able to use stablecoins to facilitate payment transactions for customers on independent node-verified networks, including the ability to issue stablecoins, as well as exchange that stablecoin for fiat currency.
In this year’s rather strong crypto market sentiment, demand for stablecoin as a major cryptocurrency settlement asset has increased dramatically, with major stablecoin issuers issuing more frequently and the total market cap of stablecoin growing from $28 billion at the beginning of the year to $108.1 billion today.
Over the past few years, the market has been anticipating the emergence of a new stablecoin to replace USDT’s leading position and reduce potential market risk due to its high level of opaqueness in terms of reserves. Although compliant stablecoins such as USDC, BUSD, PAX and GUSD have made an impact on USDT in the past few years, USDT remains the absolute leader on centralized exchanges due to user usage habits issues.
In May this year, the USDT issuer disclosed detailed data on its reserves for the first time since 2014 under regulatory pressure. As of March 31, 2021, nearly 76% of Tether’s reserves are in cash or cash equivalents, which include commercial paper, trust deposits, and cash, with the rest being secured loans, bonds, and other investments, including bitcoin, respectively.
USDT’s security is initially secured, but its position in the overall crypto market has already changed. According to Messari data, total USDT issuance now stands at $64.3 billion, up nearly threefold from issuance at the start of the year, and represents about 58% of total stablecoin issuance. At the beginning of the year, however, that percentage was still as high as 75%, a figure that suggests USDT’s overall dominance in the stablecoin industry is declining, thanks in large part to the explosive growth of the DeFi market.
More and more emerging DeFi projects have emerged this year, especially in the revenue, DEX, and lending categories, which have launched liquidity mining activities for stablecoins in order to maintain high liquidity, where annualized returns of over 50% for stablecoins have been seen from time to time, but with increased hacking and a downward market trend, they are now mostly down to around 10%.
In the DeFi market, for compliance and security reasons, most projects prefer to use ETH and USDC to establish a pool of trading pairs, USDT no longer has the same trading depth and liquidity as centralized exchanges, and users also have higher selectivity due to the characteristics of the AMM mechanism, so USDC, which has higher compliance, has become the preferred stablecoin for most DeFi users and project parties.
As of 18:30 on July 1, the USDC locked position in the Uniswap pool was $3.34 billion, while the USDT locked position was $1.66 billion, more than twice as much as the latter. In terms of trading volume, the volume of USDC pairs reached USD 6.02 billion and USD 1.85 billion for USDD pairs, the former being more than three times the latter, and also reflecting a more pronounced tendency of Uniswap users to trade with USDC.
In the Aave pool, which has the highest TVL, USDC deposit volume was $3.89 billion and borrowing volume was $2.77 billion, both of which are the highest data assets on the platform, while USDT deposit volume was $950 million and borrowing volume was $820 million, which shows that USDC is far ahead of USDT in terms of deposit volume and borrowing volume numbers.
Both figures reflect that USDC has become the most popular stablecoin asset among DeFi users and has an irreplaceable role in the DeFi ecosystem’s trading and lending business.
Judging from the recent actions, USDC is not satisfied with its existing role as a medium in the DeFi ecosystem, but wants to become the main channel for traditional financial market funds to enter the crypto and DeFi markets, and challenge USDT from a higher dimension.
USDC has always taken compliance as its main concept, and its issuers Circle and Coinbase are both companies with high status in the industry, among which Circle is the first company in the world to get a BitLicense license from New York State, and has since received payment licenses from the UK and EU, while Coinbase is the cryptocurrency exchange with the most regulatory licenses in the world.
Because of this, and the change in attitude of the U.S. regulators this year, USDC is recognized by many traditional financial institutions and the use of scenarios has increased significantly. As recently as March of this year, Visa said it would allow the use of the stablecoin USDC to settle transactions on its payment network.
In May this year, Circle also received the highest single funding amount in the history of the crypto industry – $440 million, and most of the investors were well-known venture capital institutions and hedge funds in the traditional financial sector. native payments and financial infrastructure.
In June of this year, Circle, Compound, and Coinbase all launched their USDC savings income products one after another, all yielding around 4%. Among them, Circle partnered with Genesis, a lending platform owned by Grayscale, with proceeds coming from institutional parties willing to pay rates for additional capital; Compound’s savings product’s proceeds are a combination of lending proceeds as well as COMP mining proceeds; and Coinbase’s savings product’s proceeds come from the platform’s verified lenders.
Circe also launched the DeFi API, which enables institutional users to access various DeFi protocols by accessing the API, “By using the DeFi API, companies will have easy and fast access to DeFi protocols where they can earn interest, govern tokens, and provide the same access to their customers, Circle said.
Interest rates on traditional bank savings accounts in the U.S. have been chronically low, for example, the annual percentage yield (APY) on small deposits at U.S. banks is no higher than 0.05 percent, and even some banks that offer high savings rate accounts typically have an APY on their products of around 0.60 percent.
At the same time, traditional financial users often face high barriers to entry into the DeFi market, such as private key management and on-chain interaction, and bring increased management and regulatory costs, and these difficulties also limit the entry of larger-scale funds into the DeFi market. The aforementioned institution abstracts these responsible operational processes, making it possible for users to enjoy an annualized return of 4% by simply transferring USD into their accounts.
It is foreseeable that a large amount of money from traditional financial markets will thus flood the crypto market, bringing more dollar liquidity into the DeFi market and becoming “the first institutional-level bridge to DeFi.
“This event will be something we look back on in a few years, as it started the institutionalization of DeFi, just as we look back on Compound’s COMP launch, which kicked off the liquidity mining boom. said Anthony Sassano, founder of The Daily Gwei.
Driven by demand from the DeFi market and traditional financial markets, USDC supply has soared nearly 20-fold since the beginning of the year, from $1.3 billion to $25.1 billion. In the coming months, USDC will also be issued on 10 blockchain networks, including Avalanche, Celo, Flow, Hedera, Kava, Nervos, Polkadot, Stacks, Tezos and Tron, to further amplify USDC’s dominance in the on-chain DeFi market.
As of now, the market pattern of stable coins in the crypto market has become clearer, with USDT and USDC driving the market as a duo, where USDT is content with the status quo given its compliance disadvantage and mainly serves the transaction and transfer scenarios of centralized exchanges, while USDC tries to become the main medium to connect the traditional financial world with the crypto world, enhance the adoption rate of cryptocurrencies by financial institutions, and help traditional funds enjoy DeFi services in a compliant and easy way.
In addition, DAI and BUSD each have their specific application scenarios and positioning. For example, DAI mainly serves the various needs of the DeFi native population, while BUSD is firmly established as the main stablecoin settlement asset on the CoinExchange and BSC chain, while other stablecoins exist more as market supplements.
As the crypto market becomes more mature, stablecoins are playing a bigger role in it. USDC has now become a benchmark and a driver of development in the field, just like Coinbase, which has become the most influential exchange in the market by virtue of its compliance despite not having the highest trading volume.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/usdcs-comeback-a-victory-for-defi-and-compliance/
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