Is Circle’s USDC Set To Overtake USDT As The Dominant Stablecoin On Ethereum?

The Analysis

According to his analysis, Watkins sees Tether’s share of the stablecoin supply on Ethereum falling below 50%. With USDC’s appeal as the choice stablecoin in the DeFi sector, about half of its total supply now sits inside various smart contract protocols hovering around $12.5 billion.

DeFi lending protocols MakerDAO, Compound, and Aave, are the largest consumers of USDC, holding approximately 23% of the total supply. Ethereum is the still biggest smart contract platform, and the rail powering DeFi has at least 40% of its stablecoin supply as USDC.

According to Watkins

“Although this percentage is not as high as DAI, USDC leads by a wide margin in dollar terms and has become the preferred stablecoin in DeFi for now.”

The Stablecoin Market in 2021

Just within the first half of 2021, starting out with a total market supply of $1.3 billion, USDC supply has grown by more than 1,820%. A lot of innovation by Circle and within the broader DeFi context contributed to the phenomenal growth USDC experienced within a short time.

For instance, USDC continues to be integrated among the top blockchain networks, most recently adding ten newer networks. During the peak of last year’s DeFi summer, Circle implemented gas-less transfers of USDC to address the rising spate of transaction fees on the Ethereum network. In January 2021, Circle made available its USDC API allowing seamless USDC-USD transfers, bringing about the needed bridge between traditional banks and DeFi.

While Tether continues to face dwindling market share on Ethereum, some have ascribed this fate to a connection with the lack of trust and transparency by enshrouding USDT’s reserves. In an effort to stay compliant with the New York Attorney General’s (NYAG) mandates, Tether published its first reserve breakdown in May. Per the report, 49% of Tether’s USDT is backed by unspecified commercial paper.

Tether is Yet to Inspire Trust

Experts have called out Tether, suggesting running a racketeering game with the stablecoin judging by its risk management approach. Francine McKenna, an adjunct professor at American University’s Kogod School of Business, former auditor and writer of The Dig, sharing her views on Tether’s report, said –

“That’s a little iffy. All commercial paper is not created equal because of the credit ratings of various companies. Even some of the multinationals that used to be pristine are not so anymore.”

Francine’s views and other industry-leading experts’ take could perhaps have contributed to Tether’s continuously dwindling market share on Ethereum. Moreso, Compound recently announced Compound Treasury, an initiative targeting mainstream financial houses to come to take advantage of its USDC annual 4% interest and park their USD on Compound. Ryan Watkins added that Compound Treasury would further fuel USDC growth on Ethereum as Compound Finance is a DeFi primitive on Ethereum.

What are your thoughts on the stablecoin market? Do you trust Tether?

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