• Sat. Apr 13th, 2024

Circle’s USDC Suffer Outflows Exceeding $10B as Tether’s USDT Stablecoin Gains 22-Month Dominance 

Patrick Carter

ByPatrick Carter

Mar 30, 2023

The Circle is suffering mass exit as outflows recorded in USD coin (USDC) stablecoin exceed $10 billion. The loss translates to a gain for archrival USDT stablecoin issued by Tether. Most fleeing crypto investors are swapping Circle’s USDC for USDT.

The switch translates to increased market share for USDT to command 60% of the stablecoin segment, the highest since May 2021. Tracking the net outflows across the stablecoin market shows Circle is bearing a huge loss, with $10 billion exiting the USDC stablecoin.

Banking Crisis and Regulatory Enforcements Triggering USDC Outflows

A review of the crypto industry shows that USDC token outflows trace to March 10 when US regulators intervened to salvage Silicon Valley Bank. Circle suffered the most following the SVB collapse being its banking partner for its critical reserve.

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Cicle’s USDC would lose the $1 peg hours after the SVB collapse. The USDC stablecoin would later weather the challenges as the government intervened to re-establish the dollar peg.

While Circle regained the dollar peg, CoinGecko data shows USDC token slid 23% from its $43 billion total market capitalization. Today, the USDC market capitalization of $33 billion represents a plunge attributed to the severe test of stablecoin by the uncertainties witnessed across the banking sector.

USDC stablecoin is paying the price of increased regulatory scrutiny with a plunge. Also affected is Binance USD (BUSD) token, which is among the stablecoins on a downtrend since March 10.

USDC ranks second in the stablecoin segment, with a market capitalization approximated at $33 billion. The USDC value is backed using cash reserves held in several US banks and short-term government bonds Circle realizes through the BlackRock investment management firm.

Failures witnessed in the banking segment to expose the vulnerability of financial institutions to unrealized losses compelled Circle to move a significant portion of the cash reserves to BNY Mellon. Circle only retained limited reserves in other partners. The stablecoin issuer described BNY Mellon as deploying a unique mechanism to become the global leading custodian bank.

Huge Outflows Strangling Circle’s USDC

The outflows that have become inevitable surged following the SVB implosion on March 10 following the revelation that Circles had $3.3B cash reserves deposits trapped in the vaults of the collapsed bank.

While the US government intervened timely, the collapse of SVB plunged the stablecoin into turmoil. In particular, USDC suffered a similar as smaller stablecoins depegged from the $1 price. The USDC plunge exposed the vulnerability of fiat-backed stablecoins for their continued reliance on the prevailing soundness of conventional financial systems.

A scrutiny of the 7-day run shows stablecoins’ investors redeeming $1.5 billion in excess of USDC fresh issuance. A notable investor involved in the exit is the crypto lender Voyager Digital redeeming $150 million on March 28.

While USDC regained its $1 peg, Circle is dealing with decreasing tone supply, implying investors are swapping the stablecoin tokens to embrace US dollars. The outcome is USDC bearing net outflows. A report by Enigma Securities lamented that USDC is surviving the battle but is uncertain it would triumph in the war.

Tether Gains Dominance in Stablecoin Segment

Tether’s USDT is gaining as fleeing investors from Circle’s USDC stamp its leadership in the stablecoin market. As more investors embrace USDT, Tether is gaining dominance that today has realized the highest market share since the May 2021 achievement.

Investors consider USDT a critical infrastructure within the crypto ecosystem to facilitate trading executed on exchanges. Tether attracted increased scrutiny on the reserve assets mechanism and declined transparency. Its increasing dominance shows that investors are downplaying the issues.

An outlook of the stablecoin market valued at $132 billion shows regulators’ intervention since February is triggering major reshuffles. The readjustment began following New York regulators’ purge on the third-ranked stablecoin by directing Paxos to halt Binance USD (BUSD) issuance. BUSD supply would sharply decline, eroding its market capitalization by half to $8 billion.

USDT leveraged the USDC decline and BUSD retreat to realize an additional $8 billion to $79.71 billion market capitalization, as per DeFiLlama data. Circle’s chief executive Jeremy Allaire wondered about the irony that operators with demonstrated compliance with the US banking regulation are today labeled as unsafe.

Although noncommittal, Allaire targets rival gaining in the exodus previously labelled as opaque and with financial risk episodes and inadequate oversight platforms.

In his address as Chief tech executive at Tether, Paolo Ardoino restated that USDT runs $1.6 billion in excess reserves, with the company projecting a $700 million profit for quarter 1.

Leveraging the BUSD and USDC tumble is trueUSD (TUSD) since Binance considered it an alternative stablecoin. Today, it ranks fifth after the market capitalization doubled to $2 billion from $1 billion.

Patrick Carter

Patrick Carter

Patrick Carter is a seasoned news writer known for his meticulous research and engaging storytelling. With a dedication to providing accurate and informative news coverage, his articles offer readers a comprehensive understanding of current events with a fresh and thought-provoking perspective.

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