Sunday, December 10, 2023

Why USD Coin remains under Tether’s shadow despite growing interest

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After Terra’s UST collapsed, there has been a sharp focus on dollar-pegged stablecoins. There are in fact fears that another de-pegging could pose systematic risks for the entire crypto market. Nonetheless, USD Coin has emerged as one of the key alternatives to Terra’s UST. Here is why:

  • USD Coin is managed by a verified consortium of experts.

  • USDC is also backed by dollars which are actually held physically in reserve.

  • The stablecoin is also backed by other reserve assets including US treasury bills.

Data Source: TradingView 

Why is USD Coin behind Tether?

With the attributes listed above, it is clear that USD Coin has all the makings to become a huge stablecoin. In fact, its market cap has been growing, especially after the collapse of Terra UST. However, there are some signs that USDC is not growing as fast as its market cap suggests. 

For instance, USDC liquidity on Uniswap, one of the largest DEX in the world, has dropped significantly in recent months. High liquidity on a platform like Uniswap often indicates that a stablecoin is in high demand. The fact that USDC is dropping is a concern. 

We are also seeing the largest wallets favoring Tether. In fact, research by Glassnode notes that the percentage of USDC held by 1% of the largest crypto wallets is at a one-year low. While this is not a big enough concern, it suggests that there is limited demand for the coin.

Is USDC facing De-pegging risks?

At the moment, there is nothing that indicates USDC is facing any possible risk of de-pegging. The UST collapse of course has put investors on edge. But so far, USDC has managed to maintain a stable peg on the dollar. 

It is unlikely we are going to see any de-pegging soon. However, one thing we can be sure about is that USDC is years away from competing with Tether.


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