The growth of the world’s largest stablecoin, namely USDT (Tether), continues: its dominance has expanded to such an extent that its market capitalization has risen to nearly 3.7 times that of the world’s second largest stablecoin, namely USDC (USD Coin).
Stablecoin: comparisons between Tether (USDT) and USD Coin (USDC)
Taking changes in market capitalization over time as a reference, we find that over the past two years the ratio of Tether (USDT) and USD Coin (USDC) has varied quite a bit.
Until February 2022 both were growing, with fairly similar growth rates.
In mid-March last year, however, USDC’s growth came to a halt, while USDT’s growth continued until early May.
The first major setback came precisely in May with the implosion of the Terra/Luna ecosystem, and especially the UST algorithmic stablecoin.
That implosion led many stablecoin holders to become so fearful that USDT fell in about a month from $83 billion to $66 billion in capitalization.
As USDT went down USDC however went up, simply because many were stopping using Tether to use USD Coin. And so in that abundant month USDC went from 48 billion to 55 billion in market capitalization.
That was the time when USDC came closest to USDT, as its capitalization was only 17% lower.
But things began to change as early as the next month, when USDC began a decline that is practically still ongoing. In fact it has now fallen all the way to below $24 billion, less than half of the $55 billion touched in June 2022.
In contrast, USDT beginning in February 2023 began a growth phase, still ongoing, that took it yesterday to a new all-time high at over $85 billion.
At this time USD Coin ended up capitalizing 73% less than Tether.
The situation in DeFi
However, things are slightly different in DeFi.
In fact, until a couple of years ago USDC dominated on DeFi protocols, while it has now given way to USDT.
However, for example on the Polygon network USDC continues to capitalize more: $534 million versus USDT’s $472 million.
However, these are small when compared to Ethereum, where USDT capitalizes $35 billion versus USDC’s less than $20 billion. In this, however, USD Coin capitalizes only 43% less than Tether.
The big difference is on the Tron network, where USDT capitalizes more than $45 billion, while USDC even ranks only fourth with less than $0.4 billion.
Note that USDT now capitalizes more on Tron than on Ethereum, and this is because transaction fees on the Tron network are enormously lower.
USDT also dominates on BSC (Binance Smart Chain), on Arbitrum, on Solana, on Avalanche, while on Optimism USDC dominates.
So taking only the major DeFi networks into consideration, USD Coin manages to dominate in two of them, Polygon and Optimism, both of which are Ethereum layer 2, but on all the others USDT dominates.
The reasons for Tether’s dominance
Probably the main reason for USDT’s dominance is that it never loses its peg with the dollar, even when it is under a lot of pressure.
Instead USDC in March for a few days slightly (but significantly) lost the peg with the dollar, and given that there have already been cases of stablecoins literally imploding after losing the peg (such as UST), this generated a loss of confidence in USD Coin that does not seem to have returned yet at all.
What’s more, USDT is slowly becoming more and more transparent, consistently publishing data suggesting that Tether has not only all the hedges for all the tokens it has issued, but that it even has surpluses in the till that could come in handy in case of problems.
Note that out of a total of 124 billion total market capitalization of all stablecoins in the world pegged to the U.S. dollar, as much as 68% is occupied by USDT, which therefore alone capitalizes more than twice as much as all other stablecoins combined.
This is therefore an almost absolute dominance, within which it is not even surprising that a giant like PayPal since issuing its PYUSD stablecoin a few months ago has failed to issue more than 0.16 billion of them.
Right now everything suggests that such dominance is not likely to dissolve, in the medium/short term, although in the event of a new bullrun in the crypto markets new big players may come along who may have the strength to undermine it.