Over the past year, the market dominance of stablecoins pegged to the United States dollar has undergone significant changes. According to data from CoinGecko, while most stablecoins have experienced a downward trend, Tether (USDT) has climbed back to its all-time high.
During the past 12 months, the market share of Circle’s USD Coin (USDC) reduced from 34.88% to 23.05%. In the same period, market participation of Binance USD (BUSD) fell from 11.68% to 4.18%. Meanwhile, Dai (DAI) held its participation rate at 3.66%, down from 4.05% in May 2022.
In contrast, Tether’s USDT has witnessed a contrasting trend. Its market dominance currently sits at 65.89% compared to 47.04% one year ago. Tether’s market capitalization has soared to $83.1 billion, while the USDC market cap has dropped to $29 billion from its peak of $55 billion.
Circle CEO Jeremy Allaire has blamed the crypto crackdown by the United States regulators for the declining market capitalization of USDC. The current environment in the United States appears to be beneficial for Tether.
The USDC depegged from the dollar in March following the U.S. banking crisis that led to reserves worth $3.3 billion being stuck at Silicon Valley Bank, one of three crypto-friendly banks shut down by regulators. Despite Circle’s assurances, the market quickly responded to the news, causing USDC to depeg from the dollar.
Transparency Concerns Over Stablecoin Reserves
Stablecoins have become increasingly popular due to the growing connection between the crypto space and traditional finance. However, a recent report released by the European Systemic Risk Board has highlighted the need for more transparency in the digital assets market, specifically for stablecoin reserves.
Tether has been heavily criticized for lacking transparency over the past years. The crypto firm was fined $18.5 million in 2021 by the New York Attorney General’s Office for allegedly misrepresenting the fiat backing for its reserves. As part of the settlement, the stablecoin issuer was required to provide greater financial transparency.
Tether’s leadership has fought back against the negative allegations on Twitter. Additionally, the company is seeking to reduce its exposure to the banking system following the collapse of Silicon Valley Bank. Its latest audit report shows Tether pulled over $4.5 billion out of banks in the first quarter of 2023, leading to a “substantial reduction” in counterparty risk amid ongoing global economic uncertainty.
The company also boosted its U.S. Treasury bills to a new high of over $53 billion, or 64% of its reserves. Combined with other assets, USDT is now backed by 85% cash, cash equivalents, and short-term deposits, according to the report.
Circle has also adjusted its reserves to mitigate risk in the face of macroeconomic uncertainty. The stablecoin operator no longer holds Treasuries maturing beyond early June.
The market dominance of stablecoins pegged to the United States dollar has seen significant shifts over the past year, with Tether’s USDT climbing back to its all-time high while other stablecoins experienced a downward trend. As the crypto space becomes increasingly connected to traditional finance, the need for more transparency in the digital assets market, specifically for stablecoin reserves, is becoming more apparent.