Compliance: USDC Surpasses USDT for Stablecoin Dominance

Tether, the first fiat-backed stablecoin, has long dominated the stablecoin market. In recent years, serious competitors have emerged that are giving Tether a run for its money. USD Coin (USDC), launched in 2018 by Circle, has been gaining traction, and in December 2023, it surpassed USDT in monthly transactions, according to Visa. Since then, USDC’s transaction volume has been steadily increasing, while USDT has been losing ground. On March 24, 2024, USDC closed the week with nearly five times more volume than USDT. By April 21, 2024, USDT’s weekly transaction volume had shrunk to $89 billion, while USDC had increased to $455 billion.

USDC’s rapid rise in the stablecoin market is evident from the fact that it already covers 20% of the total market, according to a report from crypto exchange OKX. The battle for stablecoin dominance is primarily between USDT and USDC, as they make up 90% of the stablecoin market. The surge in institutional adoption of cryptocurrencies is favoring USDC, as it is seen as a more compliant and regulated stablecoin compared to USDT, which has faced scrutiny over the transparency and regulation of its reserves.

USDT is based in the British Virgin Islands, known for being a tax haven for offshore banking. USDC issuer Circle operates under U.S. jurisdiction, being based in Boston, Massachusetts. USDC’s branding as a fully regulated and transparent stablecoin has put pressure on Tether to improve its public image. Tether recently underwent an independent audit by the American Institute of Certified Accountants. Upcoming regulatory frameworks in the U.S. and Europe may still favor USDC. The Lummis-Gillibrand Payment Stablecoin Act, introduced in the U.S. Congress, could impact all stablecoins in the U.S. market. To gain approval from U.S. authorities, Tether may need to establish itself outside of offshore jurisdictions.

In the European Union, the Markets in Crypto-Assets regulatory framework will require stablecoin issuers to register as e-money issuers by June 30. Circle has taken steps to comply with these regulations by applying for a Digital Asset Service Provider license in France and positioning its euro-pegged stablecoin, EURC, for the European market. Tether, Has not yet applied to become an e-money issuer in the EU.

USDC’s increasing consolidation in transaction volume should not be overlooked by Tether. If this trend continues, Tether may lose its position as the leading stablecoin in the market. The competition between stablecoins is intensifying as institutional investors enter the crypto market, creating a demand for compliant and regulated options.