USDC rises USDT or loses Ethereum stablecoin dominance

Recently, an analyst noted that USDT's share of the stablecoin supply on the Ethereum network could fall below 50% for the first time in the coming weeks. This trend stems mainly from USDC's growing importance in the decentralized finance (DeFi) space, which is quickly becoming the dominant stablecoin on Ethereum.

!

Data shows that more than 50% of the USDC supply, or about $12.5 billion, has entered smart contracts. Although this percentage is lower than DAI, USDC is far ahead in terms of dollar value. Considering that DAI's collateral also includes other assets, USDC has now become the stablecoin of choice in the DeFi ecosystem.

Among the major users of USDC, lending protocols such as MakerDAO, Compound, and Aave collectively hold about 23% of the USDC supply. MakerDAO mainly uses USDC to support DAI's price stability by anchoring the stability module, while Compound and Aave receive USDC as a deposit to provide users with income.

!

Recently, Compound Labs announced the formation of a new company, Compound Treasury, to allow emerging banks and fintech companies to exchange US dollars for USDC by partnering with other companies. These USDC tokens will be deployed on the Compound platform at a guaranteed interest rate of 4%. The move aims to simplify the process for traditional financial institutions to enter the DeFi market, abstracting away complex technical details such as private key management, crypto-to-fiat conversion, and interest rate fluctuations.

With the launch of these new initiatives, more USD liquidity is expected to enter the DeFi ecosystem. While this may reduce yields for existing users, it is expected to promote the widespread adoption of DeFi lending protocols, alleviating the US dollar liquidity shortage that has plagued these protocols for a long time.

However, the extent to which the DeFi ecosystem relies on centralized stablecoins is becoming an issue of concern. While centralized stablecoins bring liquidity to DeFi and help hedge volatility, they are not a long-term sustainable solution.

!

DAI, a decentralized stablecoin, has shown some potential to solve this problem, but its market share is only 8%. Paradoxically, DAI's mechanism for maintaining stability is also increasingly dependent on USDC.

Currently, while no other decentralized stablecoin project can replicate the success of MakerDAO, the industry is actively exploring various decentralized stablecoin design options. The most striking of these is the complete departure from dependence on the dollar.

In any case, decentralized stablecoins represented by DAI remain one of the important cornerstones for the healthy development of the DeFi ecosystem.

!