DeFi Bulletin: USDC market cap drops to its lowest level in 2 years

Decrypting DeFi is Decrypt’s DeFi email newsletter. (art: Grant Kempster)

The second largest stablecoin in the market, along with market capitalization, has been suffering usdc The circle has reached its lowest level in two years.

According to CoinGecko, the USDC market capitalization is just under $26 billion. That’s a far cry from their $56 billion high last June.

As far as competition is concerned, Tether’s USDT recently hit a new high on the same metric, reaching $83 billion.

Experts suggest that there are four major reasons why the coin crashed.

The biggest obstacle holding USDC back is probably the severe decoupling event that happened earlier this year. Amid the regional banking crisis in the United States, Circle revealed it had nearly $3 billion stashed away, sending the stablecoin down to $0.87.

“The main reason is that USDC hasn’t recovered from the banking crisis,” said the 21Shares analyst. tom wanTo decrypt, “In comparison, USDT has less volatility because the banking crisis did not affect them as much.”

Another factor is the steady rise in interest rates, as reported decrypt Bluechip Chief Economist Garrett Jones. Bluechip is a non-profit stablecoin rating platform.

“Holding USDC now means giving up 4% to 5% insurance per year,” he said. “And as people anticipate that higher rates for bank accounts and (certificates of deposits) will remain in place through 2024, the cost of holding cash in USDC is rising.”

There is also a significant difference in the issuance model of each stablecoin.

Evgeny Gavoy, CEO and founder of market maker Wintermute, shared It has been said on Twitter that people are more likely to sell USDC than USDT because apparently it is harder to spend USDT on the weekend. “Nobody prints new USDT afterwards,” he said, adding that Tether has a 0.1% issuance fee and a 0.1% redemption fee.

Gavoy also told decrypt That the way these two stablecoins are used in the cryptocurrency market affects their market caps. He said that of the two use cases for a digital dollar – collateral and non-volatile liquidity for perpetual trading – USDC is primarily for the latter.

“USDC is mostly used in DeFi as dry powder (held in reserve for use in case of emergency), whereas Tether is used as permanent collateral. So to me, it makes sense that USDC is going down while Tether is holding more or about the same,” he said, adding that standing volume is falling less than spot trading volume.

But does this mean that the race for stablecoins is officially over?

no way.

Circle is working hard to get its digital dollar back in the hands of more users.

When asked for comment, a Circle spokesperson pointed to decrypt recently Article Of Bloomberg Description of the company’s cash reserves and two threads of tweets.

These sutras relate to two major declarations.

On Wednesday, it announced an integration with Shopify, allowing merchants to enjoy “nearly free payment acceptance” while using the stablecoin. The company also announced that it will launch a token six additional blockchainsIncluding the ultra-popular Base Network.

Its relationship with Coinbase goes beyond its Layer 2 network. The cryptocurrency exchange acquired a minority stake in Circle, disbanding the pair’s Center consortium in the process.

Whatever the winner here, however, Bluechip’s Jones said at least nothing has been completely revealed, which is a win.

“Perhaps the real news here is that in crypto winter, large asset-backed stablecoins have been able to liquidate, short, and redeem their coins without great difficulty for customers,” he said. “It’s not a guarantee of what will happen in the future, but it’s a good sign.”

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