USDC overtakes USDT: Compliance is key to stablecoin dominance

As an analyst with experience in the cryptocurrency market, I’ve been closely monitoring the developments in the stablecoin sector, particularly the competition between USDT (Tether) and USDC (Circle). While USDT has historically dominated this space due to its status as the first fiat-backed stablecoin, USDC has been gaining ground rapidly over the past few years.

For a long time, Tether has held a significant position in the stablecoin market primarily due to USDT being the pioneer fiat-collateralized stablecoin.

Recently, several new contenders have emerged in the stablecoin market, posing a significant challenge to USDT’s (Tether’s) dominance.

Since 2024, the transaction volume of Circle’s stablecoin, USD Coin (USDC), has been on the rise.

As a data analyst examining the latest trends in digital currencies according to Visa’s report, I discovered that USDC surpassed USDT in terms of transaction volume for the first time during December 2023.

Starting from March 2024, I observed a consistent increase in USDC’s transaction volume, which outpaced USDT’s decline. By the end of March 24, 2024, USDC handled nearly five times as many transactions as USDT did that week.

On the week of April 21, 2024, the weekly transaction volume for USDT decreased to $89 billion, whereas USDC experienced an increase, reaching a volume of $455 billion.

USDC overtakes USDT: Compliance is key to stablecoin dominance

While USDC launched in 2018, it has already reached 20% of the total stablecoin market.

As a market analyst, I can tell you that the competition for dominance in the stablecoin sector is undeniably between Tether (USDT) and Circle’s USD Coin (USDC). The latest data from the January 2024 report by OKX crypto exchange indicates that these two players account for an impressive 90% of the entire stablecoin market share.

Based on blockchain information, US Dollar Coin (USDC) is experiencing significant institutional adoption, which could potentially challenge US Dollar Token (USDT)’s dominance. Institutional investors, who are believed to be key players in the upcoming bull market, are reportedly favoring USDC over USDT.

Stablecoins race to attract institutional investors

Over time, the crypto market has undergone significant transformation. It began as a scene marred by numerous deceptive initiatives during the Initial Coin Offering (ICO) phase. Now, however, it stands poised to welcome institutional investors on a larger scale in the wake of this year’s approval of spot Bitcoin ETFs.

The cryptocurrency market has reached a new level of development, with a strong emphasis on compliance becoming increasingly significant, according to Changpeng Zhao, the former CEO of Binance, who made this observation on platform X on May 2.

Recent: Bitcoin L2s set to explode as Runes congest BTC network

The increasing emphasis on compliance is fueling competition among businesses aiming to draw in the influx of new crypto investors – specifically, stablecoin providers who meet regulatory requirements will gain an edge.

With respect to USDT, which has faced scrutiny over the authenticity of its reserve holdings in the past, now encounters a test.

Ruslan Lienkha, chief of markets at fintech firm and crypto exchange YouHodler, told CryptoMoon:

“USDT is an offshore stablecoin with a lack of transparency and regulation, while USDC is closely watched by U.S. authorities.”

Tether, with its headquarters in the British Virgin Islands, is known for being a tax haven where offshore banking thrives. On the other hand, Circle, the issuer of USDC, operates under U.S. jurisdiction, being located in Boston, Massachusetts.

USDC’s approach to positioning itself as a strictly regulated and transparent stablecoin could be prompting Tether to make efforts to enhance its own public perception. On April 1, Tether underwent an “independent audit” by the American Institute of Certified Public Accountants, aiming for a more reputable image.

As a researcher studying the digital currency market, I’ve observed that upcoming regulation frameworks in the United States and Europe have the potential to draw users who prioritize regulatory compliance towards USD Coin (USDC) over Tether (USDT).

Introduced in the US Congress on April 17, the Lummis-Gillibrand Stablecoin Act is a proposed legislation that, if passed, would significantly impact the operation of all stablecoins within the American marketplace.

To gain the endorsement of American regulators, Tether must transform its offshore structure rather than risk being excluded from this significant global market.

Starting June 30, stablecoin issuers operating in the European Union must register as electronic money issuers under the new Markets in Crypto-Assets regulatory framework.

Preparing for the upcoming implementation of new regulations this year, Circle has strategically positioned EURC, its Euro-pegged stablecoin counterpart to USDC, for potential benefits.

Recent: Binance ties SAFU fund to USDC: Is the fund missing out on potential gains?

On March 21, 2023, Circle made an application to the French regulatory bodies for a Digital Asset Service Providing license.

Granted permissions would allow Circle to register as a digital asset service provider in the European Union. This development would pave the way for Circle to bring its primary product to the EU market and initiate the process of aligning with the Markets in Crypto-Assets (MiCA) regulation, thereby becoming a MiCA-compliant e-money token issuer under the new regulatory framework. Meanwhile, Tether has yet to submit an application for e-money issuance in the EU.

As an analyst, I’ve observed that US Dollar Coin (USDC) has been maintaining a steady transaction volume recently. This consolidation could be a sign that Tether should pay close attention. Should this trend continue, it may signal a potential shift in the market share of stablecoins, with USDC possibly challenging Tether’s dominance as the leading player.

2024-05-03 16:21

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