Tether (USDT) is the largest stablecoin on the market, with a market capitalization of over $86 billion by May 2023. Despite concerns about the current state of the cryptocurrency market, Tether continues to dominate the stablecoin space, with its supply growing exponentially since the start of 2023. However, there are signs that new a competitor may challenge its dominance in the future.
The Reign of USDT?
ACCORDING to researcher and founder of DeFiance Capital, ArthurOx, one thing that may limit Tether’s growth is the emergence of new stablecoins. As investors become increasingly concerned about the risks associated with Tether, they will likely look for alternatives that offer greater transparency and accountability.
For example, USDC (USD Coin) is a stablecoin fully backed by US dollars held in regulated financial institutions, and its supply has grown rapidly in recent years.
Another factor that may limit Tether’s growth is the emergence of decentralized stablecoins. These stablecoins are built on blockchain platforms, offering a decentralized alternative to centralized stablecoins like Tether.
Decentralized stablecoins eliminate the need for a central authority to manage reserves, because reserves are created in smart contracts on the blockchain. It offers high transparency and security and eliminates the risk of a central authority mismanaging reserves or engaging in fraudulent activities.
An example of a decentralized stablecoin is DAI, which is built on the Ethereum blockchain. DAI is backed by a basket of cryptocurrencies held in smart contracts on the blockchain. This ensures that the value of DAI remains stable while offering high transparency and security.
In addition to these factors, there are also regulatory risks associated with Tether. The stablecoin has come under scrutiny from regulators in the US and other countries, with some calling for greater transparency and oversight. If regulators impose stricter regulations on Tether, this could limit its growth and open up opportunities for other stablecoins to gain market share.
Tether And USDC Show Strength Amid US Debt Drama
According to a recent report by Kaiko, USDT and USDC showed little volatility amid the ongoing drama surrounding the US debt ceiling. Despite concerns of a potential US default, USDT and USDC have seen little to no price movement over the past two weeks. This suggests that markets do not see default as a base case scenario and that investors remain confident in the stability of these stablecoins.
Interestingly, USDT and USDC increasingly trade in tandem during times of market stress. For example, when Binance temporarily stopped withdrawals for Bitcoin (BTC) earlier this month due to network congestion issues, both stablecoins rose above $1, as seen in the chart above. This suggests that the USDC may be gaining some safe-haven appeal as US banking problems ease.
The stability of USDT and USDC during the debt ceiling drama reflects a broader trend in the cryptocurrency market, where stablecoins are becoming an increasingly popular way for investors to hedge against volatility.
These developments highlight the growing importance of stablecoins in the cryptocurrency ecosystem. As more investors seek leverage against market volatility and regulatory uncertainty, demand for stablecoins is likely to grow. In addition, the emergence of new decentralized finance (DeFi) applications that require stablecoins as a means of exchange and collateral also boosts demand.
Featured image from Unsplash, chart from TradingView.com
