Crypto investors are fleeing Circle’s USD coin (USDC) stablecoin, with many of them switching to Tether, which has reached a 22-month high in market share.
USDC token net outflows have surpassed $10 billion since March 10, when regulators shuttered key reserve banking partner Silicon Valley Bank. U.S. payments firm Circle has weathered SVB’s collapse, and USDC has re-established the dollar price peg it lost in the immediate aftermath, but the token has still dropped 23% from its one-time $43 billion market capitalization, according to crypto price tracker CoinGecko.
USDC’s plunge comes as the stablecoin sector has been severely tested by banking sector uncertainties and increasing regulatory scrutiny. Binance’s BUSD token has also plummeted, among other stablecoins.
USDC remains the second-largest stablecoin with a market capitalization of $33 billion. Circle backs the token’s value with short-term government bonds administered by investment management giant BlackRock and cash reserves at various U.S. banks. After failures in the banking system, Circle has moved "substantially all" the cash to BNY Mellon, one of the world's largest custodian bank, keeping "limited funds" at other partners, according to the firm.
Outflows surged starting March 10 as SVB imploded, locking $3.3 billion of cash reserve deposit in its vaults for days until government intervention. The event tossed the stablecoin market into turmoil as USDC and smaller stablecoins lost their price peg temporarily, and also highlighted how fiat-backed stablecoins rely on the soundness of traditional financial systems.
Over the past week, investors have redeemed $1.5 billion more USDC than new issuance, including bankrupt crypto broker Voyager, which redeemed $150 million on Tuesday. As USDC pegs its price at $1, a decreased token supply means investors have exchanged USDC tokens for U.S. dollars. The result is net outflows.
“USDC has survived the battle, but it remains unclear whether it will win the war,” digital asset brokerage Enigma Securities wrote earlier this month in a report.
Tether’s rising dominance
USDT took advantage of BUSD’s retreat and USDC’s slump, CryptoCompare highlighted in its March market report.
Since March 10, USDT’s market capitalization has grown some $8 billion to $79.5 billion and it holds a 60% market share among stablecoins, according to DefiLlama. The last time USDT had such a large share was in May 2021.
“Ironically, the players who have had the strongest position with U.S. regulation and U.S. banking system integration, are considered ‘unsafe,’ with fears that assets could be stranded,” Circle Chief Executive Jeremy Allaire tweeted last week. “Market participants are shifting into platforms with no oversight, totally opaque bank and risk exposures, and histories of lax financial risk and integrity controls.”
Paolo Ardoino, chief technology officer of Tether, said in a CNBC interview that USDT has around $1.6 billion of excess reserves and the stablecoin issuer was on track to book a $700 million profit in the first quarter of the year.
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