Tether’s loss is helping rival Circle’s USD Coin

Tether, the world's largest stablecoin, is seeing a rush of redemptions, which is benefiting Circle's USD Coin.

Edited By Sounak Mukhopadhyay
Updated19 May 2022, 08:06 PM IST
Tether is the world's largest stablecoin. REUTERS/Dado Ruvic/Illustration
Tether is the world’s largest stablecoin. REUTERS/Dado Ruvic/Illustration(REUTERS)

Circle’s USD Coin is taking advantage of the fall in circulation of its closest rival - Tether - continues to decline in a wave of redemptions. On May 12, Tether's USDT momentarily lost its dollar peg and dropped to 95 cents, much below the $1 threshold it is supposed to maintain. Stablecoins are supposed to be pegged to the US dollar one-to-one, and Tether happens to be the world’s largest stablecoin. The setback for Tether's USDT prompted $8.5 billion in redemptions to date, according to CoinGecko data. The collapse of algorithmic stablecoin TerraUSD prompted investors to seek refuge in other crypto-assets that aimed to preserve a one-to-one peg with the US dollar.

The overall market capitalizations of Tether and Circle look to be convergent as investors trade from one to the other. Circle's circulation has increased by nearly $3.4 billion over the same time span. Other stablecoins are gaining as well, with the value of Binance USD increasing by $1.2 billion.

Increased volatility in stablecoins, according to industry analysts, might affect the value of hundreds of speculative crypto assets that have drawn investors from all around the world.

TerraUSD, or UST, used an algorithmic design to adjust its supply through trades with its sister token Luna, intended to help it keep a steady value of $1. Collateralized stablecoins like Tether and USD Coin, however, rely on a reserve of dollar and dollar-equivalent assets to support their supply. Questions have previously been raised about the quality of Tether’s stockpile, though it remains the dominant quote pair on many crypto exchanges.

The fallout from Tether’s brief dip from its peg has reversed a downward trend for Circle’s USDC, the supply of which had been slowly contracting since late February, data from Glassnode show.

“Given the dominant growth of USDC over the last two years, this may be an indicator of changing market preference away from USDT and towards USDC as the preferred stablecoin,” a Glassnode on-chain analyst known by the moniker Checkmate said in a report Monday.

Jeremy Allaire, chief executive of Circle, told Bloomberg on Tuesday the company had seen a flood of additional demand after Terra’s collapse.

“There were multiple scenarios where we could see it being triggered into a death spiral, and that’s exactly what happened,” Allaire told Bloomberg TV. “We’ve seen since then a real flight to quality.”


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First Published:19 May 2022, 08:06 PM IST
HomeMarketsCryptocurrencyTether’s loss is helping rival Circle’s USD Coin

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