Changes in the stablecoin market landscape: USDC rises in the Decentralized Finance field

The development of stablecoins in 2021 is very different from previous years. While USDT is still dominant on exchanges, it has been overtaken by USDC in the DeFi market. The data shows that USDC is more favored by DeFi users. At the same time, stablecoins are not only a tool for crypto users to reduce risk, but also become an important compliance channel for traditional finance to enter the crypto and DeFi markets.

Stablecoins have always been the focus of the crypto market, playing an important role in the decentralized field with a relatively centralized mechanism, especially in the trading and transfer scenarios of centralized exchanges, helping users reduce the risk of asset volatility and fix income.

Stablecoin status has been recognized by U.S. regulators. In January, the U.S. Department of the Treasury's Office of the Comptroller of the Currency allowed U.S. banks to use U.S. dollar stablecoins for payment settlements, including issuing stablecoins and converting them into fiat currency.

The crypto market has strengthened this year, and the demand for stablecoins as the main settlement asset has increased significantly. The total market value of stablecoins has increased from US$28 billion at the beginning of the year to US$108.1 billion today.

In the past few years, due to the opacity of USDT reserves, the market has expected new stablecoins to replace its leading position. Although compliant stablecoins such as USDC have launched challenges, USDT is still overwhelmingly dominant on exchanges.

In May this year, the issuer of USDT disclosed reserve data for the first time in detail. As of the end of March, nearly 76% were in cash or cash equivalents, including commercial paper, trust deposits, etc., with the remainder in secured loans, bonds, and other investments.

The security of USDT has been initially ensured, but the market position has changed. At present, the total amount of USDT is 64.3 billion US dollars, an increase of nearly 3 times from the beginning of the year, accounting for 58% of the total number of stablecoins, down from 75% at the beginning of the year, indicating that its dominance has declined, largely due to the explosion of the DeFi market.

This year, a large number of emerging DeFi projects have emerged, and stablecoin mining has been launched to maintain liquidity. However, in the DeFi market, for compliance and security reasons, most projects prefer to use ETH and USDC to build pools. USDT no longer has the depth and liquidity of centralized exchanges, user selectivity has increased, and USDC with higher compliance has become the first choice.

As of the beginning of July, the amount of USDC locked in a DEX pool was $3.34 billion, twice that of USDT. The trading volume of the USDC trading pair was $6.02 billion, three times that of USDT, reflecting the preference of users to use USDC. Among TVL's highest lending platforms, USDC deposits of $3.89 billion and borrowings of $2.77 billion are the highest, far exceeding USDT. These data reflect that USDC has become the first choice of DeFi users and is irreplaceable in trading and lending.

USDC is trying to become the main channel for traditional finance to enter the crypto and DeFi markets, challenging USDT from a higher dimension. USDC has always been a selling point for compliance, and its issuers have obtained regulatory licenses in many places. Therefore, it has been recognized by traditional financial institutions, and the use scenarios have increased. In March of this year, a payment giant allowed USDC to settle transactions.

In May, the USDC issuer raised $440 million, the highest single financing in the industry. Since then, the rollout to financial institutions has been accelerated to build a "digital currency-native payment and financial infrastructure".

In June, several institutions launched USDC savings products with an annual yield of about 4%. At the same time, they also introduced a DeFi API to facilitate institutional users' access to various DeFi protocols. These products far exceed traditional bank interest rates and lower the barriers to entering DeFi, which is expected to attract a large amount of traditional capital.

Driven by demand, this year's USDC supply increased from $1.3 billion to $25.1 billion, a nearly 20-fold growth. In the future, it will also be issued on more blockchains, further expanding its advantages.

At present, the stablecoin landscape is becoming clearer: USDT and USDC are dual-core driven, USDT is mainly a service-oriented exchange, and USDC connects traditional finance with the crypto world. Others, such as DAI and BUSD, have their own localizations and exist as supplements.

As the market matures, the role of stablecoins becomes more and more important. USDC has become an industry benchmark and driving development, just as a leading exchange has become the most influential exchange due to compliance.

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