Challenges Ahead for USDC to Overtake Tether as Leading Stablecoin
Tether (USDT) and USD Coin (USDC) dominate the stablecoin market, collectively accounting for a staggering 90% of its total market capitalization. Recent analysis highlights Tether’s market cap at approximately $158.9 billion, while USDC stands at around $62.6 billion. This raises a critical question: Can USDC close the substantial $100 billion gap with Tether, or does Tether’s established position give it an insurmountable edge? The answer may be more nuanced than expected, as three compelling factors suggest USDC could potentially surpass Tether in popularity.
Global Reach and Market Presence
While both Tether and USDC maintain a 1:1 peg to the U.S. dollar, they exhibit significant differences that could influence their respective futures. Tether operates out of the Caribbean, whereas USDC is firmly rooted in the United States. Issued by Circle Internet Group, which recently went public on the New York Stock Exchange, USDC is increasingly perceived as the American stablecoin. Conversely, Tether has found substantial traction in emerging markets, boasting a user base of 350 million worldwide. Interestingly, Circle reports that around 70% of USDC’s activity is now occurring outside the U.S. To enhance its global presence, USDC must forge new partnerships internationally, building upon existing collaborations with U.S. financial and fintech entities like Coinbase.
Attracting Institutional Investors
USDC has a promising opportunity to become the go-to stablecoin for large institutional investors. The recent passage of the Genius Act by Congress may expedite this process by establishing clear guidelines on stablecoin backing. The Act mandates that stablecoins must be backed 1:1 by cash or cash equivalents, rendering alternative assets unacceptable. Historically, Tether has faced scrutiny for its lack of transparency regarding the assets backing its USDT. Allegations have surfaced regarding Tether’s use of non-compliant assets and insufficient disclosure compared to Circle’s practices. As a result, conservative institutional investors may gravitate toward USDC, given its reputation for transparency and adherence to U.S. regulations. Despite Tether’s greater liquidity and lower slippage on dollar pegs—beneficial for high-frequency trading—its regulatory risks could deter cautious investors.
Expanding Use Cases for USDC
Lastly, USDC has the potential to gain an advantage over Tether by diversifying its applications for both consumers and businesses. Recent reports indicate that major retailers like Amazon and Walmart are contemplating stablecoins as a payment option. By adopting stablecoins, these companies could significantly reduce credit card processing costs, thereby enhancing their profit margins. To capitalize on this trend, Circle should aggressively pursue partnerships with retailers and businesses to promote USDC as an innovative payment solution. Notably, Shopify has already aligned with USDC, and Circle is collaborating with Coinbase to facilitate broader usage of USDC in consumer transactions.
Prospects for USDC’s Growth Relative to Tether
For USDC to surpass Tether in market capitalization, several factors must align favorably. If USDC can achieve a doubling of its market size annually, while Tether continues to grow at a steady rate of 10%, the gap could potentially narrow significantly within the next two years. While skepticism about Circle exists among certain analysts, there remains a compelling case for considering an investment in USDC as the stablecoin market continues to evolve.
