Is USDC Set To Overtake Tether (USDT) Quickly?
The stablecoin market has recently experienced a significant level of volatility, notably evidenced by TerraUSD (UST) deviating from its peg, thereby unsettling the market stability of its rival stablecoins. Prior to the advent of UST, a competition had been vigorously unfolding between USD Coin (USDC) and Tether (USDT).
USDT vs. USDC
As of the current analysis, UST, a stablecoin originally engineered to maintain a $1 value, is trading at an approximate value of $0.068. On May 9, the date of its peg deviation, both Tether (USDT) and USD Coin (USDC) underwent consequential fluctuations. While Tether’s value dipped to a low of $0.95, USD Coin, along with other stablecoins like Binance USD (BUSD) and DAI, traded at a premium ranging from $0.01 to $0.02.
It is critical to delineate that Tether did not technically lose its peg; rather, its market valuation momentarily descended below the $1 mark. This nuance is pivotal for its sustained market presence, unlike UST, which lacked the necessary fiat reserve for redemptions as its value plummeted.
As evidenced by Tether’s internal data, within the 24-hour period following May 11, approximately $300 million worth of USDT was redeemed, followed by an additional $2 billion the subsequent day. In stark contrast, USD Coin witnessed an upward trajectory in market demand. Tether’s circulating supply, which peaked at $83.23 billion at the beginning of May 2022, retracted to $75.75 billion within four days due to a $7.4 billion redemption.
Concurrently, the circulating supply of USDC escalated from $48.45 billion to $51.09 billion within the same time frame. At present, USDC’s circulating supply stands at $53 billion, and it is verging on surpassing Binance Coin (BNB) in market capitalization.
Moreover, recent developments in the cryptocurrency market indicate an increasing demand for USDC, exemplified by crypto exchange FTX’s launch of equity trading services that employ USD Coin as the payment medium for share acquisitions in companies such as Apple, Tesla, and Disney.
An examination of the growth trajectories for both Tether and USD Coin within a one-year period—specifically from May 2021 to May 2022—reveals that USD Coin has exhibited a far more accelerated growth rate. While Tether’s supply increased by 23.5% to reach $73.1 billion, USD Coin observed a 163.3% growth, amounting to a circulating supply of $53.5 billion.
While concerns about stablecoin reserves have escalated in the aftermath of TerraUSD’s depegging, the spotlight has also been cast on Tether’s reserves. Despite its claim of undergoing an external audit, Tether has failed to produce corroborative reports. Financial research firm Hindenburg has even offered a $1 million reward for information about Tether’s reserves, thereby exacerbating concerns.
In the first quarter of 2022, Tether reported a 17% reduction in its reserve’s commercial paper, declining from $24.2 billion to a mere $20.1 billion, followed by an additional 20% reduction as Q2 2022 commenced. Conversely, the reserves underpinning Tether observed a 13% increment in U.S. Treasury bills, rising from $34.5 billion in Q4 2021 to $39.2 billion in Q1 2022.
Moving forward, while it remains uncertain whether Tether will disclose additional reserve details, the ripple effect instigated by the depegging of TerraUSD poses a formidable challenge to stablecoins in securing investor confidence.
