Circle’s share of USDC in decentralized exchanges has decreased from 61% in March to 52% today.
The United States Federal Reserve is currently trying to contain inflation by raising interest rates, and this decision has caused a knock-on effect in the stablecoin market, with the USDC stablecoin Circle emerging as one of the main losers in this situation.
USDC’s supply peaked at $55.1 billion in June 2022 but has since suffered a loss of more than $29 billion, equivalent to 41% of its market capitalization. This significant decline can in part be attributed to higher yields offered by US Treasuries, which currently hover around 5% for popular bond-based ETFs. This higher yield is prompting major USDC holders to reevaluate the convenience of keeping this stablecoin in their wallets.
USDC’s popularity among US and European cryptocurrency investors was based on its perceived trustworthiness, regulatory compliance, and transparency of support resources. However, the easy access to US Treasury bonds for investors who prefer USDC has led to an exodus from this stablecoin, causing a significant decrease in the circulating supply.
The CEO of blockchain data platform ChainArgos, Jonathan Reiter, said that USDC’s market capitalization could fall to just $10 billion by Q1 2024, after a 15-month negative trend. This forecast could have a significant impact on the future of USDC in the cryptocurrency market.
On the other hand, other stablecoins, such as Tether’s USDT, the largest stablecoin with a circulating supply of over $83 billion, are not experiencing the same negative effects from rising bond yields. Tether’s market capitalization has grown since June of the previous year to $83 billion today: Tether’s popularity in Asia helped avoid a massive investor exodus, as Asian investors have no access to the same risk-free returns offered by US Treasuries.
The preference for Tether in Asia is also due to its adoption in many developing countries and those with high levels of inflation, such as Lebanon. This confirms Tether’s global role as a benchmark stablecoin.
Investors interested in achieving higher yields by using USDC in decentralized financial protocols (DeFi) are facing difficulties in competing with the yields of Treasuries.
USDC’s supply reduction is also negatively impacting its use in DeFi, making it a less attractive option for investors. USDC’s share of decentralized exchanges decreased from 61% in March to 52% today, while Tether’s share increased from 27% to 36% over the same period. Additionally, USDC liquidity in Curve Finance’s 3Pool dropped sharply from $2.1 billion to $70 million, representing a 98% decline.
However, Circle isn’t sitting idle. Circle CEO Jeremy Allaire announced the upcoming launch of USDC on six new blockchains, including Coinbase’s Base and Optimism blockchains. Additionally, ties between Circle and Coinbase are strengthening, with Coinbase acquiring an equity stake in Circle, and offering USDC deposit yields. This could curb the USDC decline, at least in part.
However, these moves may not be enough to significantly improve USDC’s market capitalization in the near term. The fate of this stablecoin seems linked to the general trend of the cryptocurrency market, and only time will tell if it will be able to recover from its current difficult situation.
Original article published on Money.it Italy 2023-09-12 07:30:00. Original title: La crisi della stablecoin di Circle e la concorrenza dei Treasury americani
