The market pattern of stablecoins in the encrypted market has become clearer. USDT mainly serves the trading and transfer scenarios of centralized exchanges, while USDC is trying to become the main medium connecting the traditional financial world and the encrypted world, helping traditional funds to comply with regulations and easily. Ways to enjoy DeFi services.
Written by: Hu Tao
The battle for stablecoins has entered into 2021 and has shown a completely different situation from the past few years. USDT’s position in exchanges is still stable, but its position in the DeFi market has been reversed by USDC. Various data show that USDC has particularly won the favor of DeFi users. .
At the same time, stablecoins are not only a tool for crypto users to reduce asset risks, but also an important and compliant medium for traditional financial market funds to enter the crypto market and DeFi fields.
Stablecoins have always been the focus of the crypto market. They play an important role in the decentralized cryptocurrency field with a relatively centralized mechanism, especially the trading and transfer scenarios in centralized exchanges, which can help users reduce their encryption. Asset volatility risk and fixed income.
The status of stablecoins has even been recognized by US regulators. In January this year, the U.S. Department of the Treasury’s Office of the Comptroller of the Currency (OCC) announced on its official website that U.S. banks would be allowed to use USD stable currency for payment and settlement. The document stated that banks may use stablecoins to facilitate customers’ payment transactions on the independent node verification network, including the ability to issue stablecoins and exchange the stablecoins for legal tender.
In the strong crypto market this year, the demand for stablecoins, as the main cryptocurrency settlement asset, has surged, and major stablecoin issuers are frequently issuing more. The total market value of stablecoins has increased from 28 billion U.S. dollars at the beginning of the year to today’s 108.1 billion US dollars.
In the past few years, due to the high degree of opacity of USDT in terms of reserves, the market has been looking forward to the emergence of new stablecoins to replace USDT’s leading position and reduce potential market risks. Although USDC, BUSD, PAX, GUSD and other compliant stable currencies have launched an impact on USDT in the past few years, due to user habits, USDT is still the absolute leader in centralized exchanges.
In May of this year, the USDT issuer disclosed detailed data on its reserves for the first time since 2014 under regulatory pressure. As of March 31, 2021, nearly 76% of Tether’s reserves are cash or cash equivalents, including commercial paper, trust deposits, cash, etc., and the rest are secured loans, bonds, and others including Bitcoin investment.
The security of USDT has been initially ensured, but its position in the overall encryption market has changed. According to Messari data, the current total issuance of USDT is US$64.3 billion, which is nearly three times higher than the issuance at the beginning of the year, and accounts for approximately 58% of the total issuance of stablecoins. However, at the beginning of the year, this ratio was still as high as 75%. This data shows that the overall dominance of USDT in the stable currency industry is declining, and this is largely due to the explosive growth of the DeFi market.
Since the beginning of this year, more and more emerging DeFi projects have emerged, especially the income category, DEX category, and lending category. In order to maintain high liquidity, they will launch stable currency liquidity mining activities, of which the annualized return of stable currency exceeds 50%. The above situations often occur, but with the increase in hacker attacks and the market downturn, most of them have dropped to about 10% at present.
In the DeFi market, due to compliance and security considerations, most projects are more willing to use ETH and USDC to establish a trading pair fund pool. USDT no longer has the same trading depth and liquidity as a centralized exchange. Users also have higher selectivity due to the characteristics of the AMM mechanism, so the more compliant USDC has become the stable currency of choice for most DeFi users and project parties.
As of 18:30 on July 1, the USDC locked position in the Uniswap fund pool was 3.34 billion U.S. dollars, and the USDT locked position was 1.66 billion U.S. dollars. The former is equivalent to more than twice the latter. In terms of trading volume, the trading volume of USDC trading pairs reached 6.02 billion U.S. dollars, and the trading volume of USDT trading pairs was 1.85 billion U.S. dollars. The former is equivalent to more than three times the latter, and it also reflects the tendency of Uniswap users to use USDC trading. obvious.
In the Aave fund pool with the highest TVL, USDC deposits are 3.89 billion U.S. dollars and borrowings are 2.77 billion U.S. dollars, both of which are assets with the highest data on the platform. USDT deposits are 950 million U.S. dollars and borrowings are 820 million U.S. dollars. It can be seen that USDC is far ahead of USDT in terms of deposit volume and borrowing volume.
These two data both reflect that USDC has become the most popular stable currency asset for DeFi users and has an irreplaceable role in the transaction and lending business of the DeFi ecosystem.
From the perspective of recent actions, USDC is no longer satisfied with its existing media role in the DeFi ecosystem, and hopes to become the main channel for traditional financial market funds to enter the encrypted market and DeFi market, and challenge USDT from a higher dimension.
USDC has always used compliance as its main concept. Its issuers Circle and Coinbase are both high-status companies in the industry. Among them, Circle is the first company in the world to obtain a BitLicense license from New York State, and has since then successively obtained the United Kingdom and the European Union. Payment license, and Coinbase is the cryptocurrency exchange with the most regulatory licenses in the world.
Because of this, coupled with the change in the attitude of the US regulators this year, USDC has been recognized by many traditional financial institutions, and the usage scenarios have increased significantly. In March of this year, Visa stated that it would allow the stable currency USDC to settle transactions on its payment network.
In May of this year, Circle also received the highest single financing amount in the history of the crypto industry-440 million U.S. dollars. The investors are mostly well-known venture capital institutions and hedge funds in the traditional financial field. Since then, Circle has significantly accelerated the USDC’s financial institutions. Marketing efforts to build “a complete set of digital currency native payment and financial infrastructure.”
In June of this year, Circle, Compound, and Coinbase all launched USDC savings income products, with yields around 4%. Among them, Circle cooperates with Genesis, the lending platform of Grayscale, and the income comes from institutions that are willing to pay interest rates to obtain additional capital; the income of Compound savings products is a combination of loan income and COMP mining income; the income of Coinbase savings products comes from this A verified lender on the platform.
At the same time, Circe also launched the DeFi API, allowing institutional users to access the API to access various DeFi protocols. ” By using the DeFi API, companies will be able to easily and quickly access the DeFi protocol, where they can obtain interest and governance tokens. And provide their customers with the same access rights. ” Circle said.
For a long time, interest rates for savings accounts in traditional U.S. banks have been at a low level for a long time. For example, the annual rate of return on small deposits (APY) of Bank of America is not higher than 0.05%. Around 0.60%.
At the same time, traditional financial users often face high barriers to entering the DeFi market, such as private key management, on-chain interaction, etc., which bring increased management costs and regulatory costs. These difficulties also limit the entry of larger-scale funds into the DeFi market. The aforementioned agencies abstracted these responsible operations, allowing users to simply transfer US dollars to their accounts to enjoy 4% annualized income.
It is foreseeable that a large amount of funds in the traditional financial market will emerge from the encrypted market, introducing more dollar liquidity into the DeFi market, and becoming “the first institutional bridge to DeFi.”
” This event will be something we will look back on in a few years, because it started the institutionalization of DeFi, just like when we reviewed Compound’s COMP release, it opened the liquidity mining boom. ” The Daily Gwei founder Anthony Sassano Said.
Driven by DeFi market demand and traditional financial market demand, the supply of USDC has soared nearly 20 times since the beginning of this year, rising from US$1.3 billion to US$25.1 billion. In the next few months, USDC will also be issued on 10 blockchain networks including Avalanche, Celo, Flow, Hedera, Kava, Nervos, Polkadot, Stacks, Tezos, and Tron, to further amplify USDC’s on-chain DeFi market Advantage.
At present, the market structure of stablecoins in the encrypted market has become clearer. USDT and USDC are dual-core-driven markets. USDT is satisfied with the status quo due to its compliance disadvantages. It mainly serves the trading and transfer scenarios of centralized exchanges. , USDC is trying to become the main medium connecting the traditional financial world and the crypto world, increasing the adoption rate of cryptocurrencies by financial institutions, and helping traditional funds enjoy DeFi services in a compliant and simple manner.
In addition, DAI and BUSD each have their specific application scenarios and positioning. For example, DAI mainly serves the various needs of the DeFi native population, and BUSD has a stable position as the main stable currency settlement asset on the Binance Exchange and the BSC chain, and other stable assets. Coins exist more as market supplements.
As the crypto market matures, stablecoins play an increasing role in it. USDC has become a benchmark in this field and is driving development, just like Coinbase. Although the trading volume is not the highest, it still relies on Compliance has become the most influential exchange in this market.
