As Tether Faces Billions in Redemptions, Circle’s USDC Is Gaining Ground

During Crypto Winter, Investors Will Share a Portion of Bull Market Profits in stablecoin to wait out the recession.

However, over the past two months, through Terra’s UST stablecoin, collapsepotential panic Cryptocurrency lending company Celsius bank run When Cryptocurrency hedge fund Three Arrows Capital collapses— Its bearish actions have yielded very different results for the two largest stablecoins by market cap. Tether (USDT) When US dollar coin (USDC).

Tether’s market cap is down 19% from its all-time high of $83 billion in early May, while USDC is up 5% to reach an all-time high of $56 billion. Decryption Analysis using CoinGecko data. This means that Tether supply has been shrinking rapidly since May. This shows that large investors have cashed out their USDT positions since the market crash. Meanwhile, USDC supply is increasing, suggesting an increase in demand.

It was a very strong move for USDC. In the last 50 days, the Circle stablecoin has broken all-time highs 28 times. In fact, it’s been happening every day since June 15th until yesterday. On Tuesday afternoon, the gap between USDC and Tether narrowed to about $12 billion. This is the lowest since fall 2020.

Currently, USDC can pull even Tether if the market cap increases by about 21%. However, this has a very serious caveat. Especially now, it is dangerous to assume that an asset’s past performance guarantees its future performance.

stablecoin Tether, USDC, etc. are commonly used by traders to open and close trading on other cryptocurrencies. Especially in situations where you don’t have access to the US dollar, UniswapThese stablecoins represent a significant percentage of the daily trading volume of the cryptocurrency market and are often Bitcoin, ethereumthe remaining top 10 coins by market cap.

However, since early May, the circulating supply of Tether (coins available to the public, excluding private sales and company-held coins) has decreased by 15 billion. In the second week of May, when things really took a turn for Terra and all sorts of stablecoins were heating up, a Tether holder said he turned his $7 billion worth of stablecoins into cash. It is After USDT Temporarily Loses Dollar Peg.

This could be a sign that investors are losing faith in cryptocurrencies to recover and even stablecoins are starting to look like risky investments.

But Paolo Ardoino, Tether’s chief technology officer, said the company could Redeem “without blinking”. Since then, Tether appears to have redeemed another $8 billion. However, there is some confusion as to whether the $4.5 billion that was sent to crypto exchange Bitfinex yesterday was burned, was taken out of circulation because it was redeemed, or was simply transferred to Tether’s sister company. There was controversy.

A Tether spokesperson said: Decryption The stablecoin’s 24-hour volume is $48 billion compared to USDC’s $5 billion at the time of this writing, indicating greater utility than its competitors, and a drop in market cap says the reserves are evidence that they have sufficient liquidity to handle cash. redemption.

“For example, rather than cater to the traditional banking industry, Tether is focused on becoming the currency of choice for peer-to-peer exchanges, remittances, freedom and inflation hedging in developing countries,” the spokesperson said. A representative said in an email. “This is why the billions of cash redemptions we have been making effortlessly over the past few weeks have reduced Tether’s market cap while Tether’s 24 [hour] Trading volume remains about 10x that of its closest competitor. ”

Circle, the consortium that issues USDC, did not respond to this Decryptionrequest for comment.

USDT and USDC are not without competition, but they are easily the most dominant in the stablecoin category. According to CoinGecko, Tuesday’s total market cap represents 79% of the total $155 billion stablecoin market cap. The third largest stablecoin, Binance USD (BUSD), has a market capitalization of $17 billion.

According to CoinGecko, Tether had a market capitalization of $78 billion at the beginning of the year, which is almost double USDC’s $42 billion. It goes without saying that much has changed for USDT and USDC, the third and fourth largest cryptocurrencies by market capitalization after Bitcoin and Ethereum.

Terra’s UST stablecoin lost its peg in early May, with algorithmic stablecoins like UST and centralized stablecoins like USDT and USDC backing their coins with cash or cash-equivalent reserves. There was a flood of movements to draw a line between coins.

Tether co-founder Reeve Collins said, “We should be very comfortable with Tether holding the peg as it is dollar-backed and immune to market forces.” . Decryption In an email dated May 10th Starting to get worse for TerraUSD“I wouldn’t be surprised if more holders of algorithmic stablecoins start shifting their money to asset-backed coins like Tether.”

Two days later, panic over the UST meltdown intensified, Tether Temporarily Drops to $0.95before regaining its 1:1 peg with the US dollar, according to data from CoinMarketCap.

On the same day, Dante Disparte, Circle’s Chief Strategy Officer, published a blog post. take a winning lap at the expense of what he called “instruments disguised as stable”.

“If you want to create price parity that references the dollar and counteracts buyer and consumer regrets, you should buy high-quality liquid assets (HQLA in banking terms) that are actually in the dollar-denominated and regulated banking system. must hold.” he wrote.

USDC survived Terra’s crisis without falling below $0.99. However, last Monday, the day after Celsius announced that he had lost his peg, he briefly lost his peg. frozen accountAccording to CoinGecko, it has fallen to $0.97.

Last week, Tether said, “False rumor” is for the portion of cash reserves held in corporate papers or liabilities owed by institutional borrowers. Tether came under some criticism last year for holding a significant portion of its cash reserves in commercial paper.

In September 2021, Chinese property developers Evergrande and Kaisa are at risk of missing payments on US dollar-denominated bonds, a type of commercial paper that accounted for $30.6 billion of Tether’s $69 billion reserves at the time. I was.

Since then, the company said it has further reduced its commercial paper holdings. The company’s accounting firm said in an assurance report that commercial his papers and certificates of deposit as of March 31, 2022 represented about a quarter of its $82 billion reserves.

Last week’s statement also attempted to distance Tether from crypto lender Celsius, which is trying to stem a bank run, and potentially bankrupt hedge fund Three Arrows Capital.

According to a statement, Tether “has zero exposure to Celsius, other than a small investment made from the company’s Tether shares.” It also said it had no “loan exposure to Three Arrows Capital” struggling to negotiate with creditors to avoid liquidation. Co-founders Kyle Davis and Su Zhu said: wall street journal They said they lost $200 million when Terra cratered in May.

The rapidly changing market has, for better or worse, shed light on the two largest stablecoins.

According to CoinGecko, as of May 17, 2021, the gap between Tether and USDC was the largest ever, with USDT’s market cap at $59 billion, nearly four times USDC’s $17 billion.

May 2021 marks the beginning of a turbulent era for the cryptocurrency market, which will ultimately put the global cryptocurrency market in the spotlight. 9% decrease in 24 hours May 23, 2021.

At the time, a series of bad news was about to hit cryptocurrency prices: Tesla CEO Elon Musk said the company stop accepting bitcoinmajor cryptocurrency exchanges such as Binance and Coinbase; suffered a power outage; Chinese regulators Shut down bitcoin mining business all over the country.

A week later, on May 23, 2021, Tether’s market cap remained virtually unchanged, while USDC added $4 billion to its market cap. Tether was still not the biggest stablecoin, but in a week he quadrupled to tripled USDC.

As long as both stablecoins exist, Tether’s market cap is typically several times USDC.But that’s all changed now— and potentially forever.