USDC on Ethereum: Why this could pose a threat to this alt

With a market cap of $62.75 billion at press time, Tether or USDT was the market’s 3rd most valuable crypto-asset. USDC, the other major stablecoin in the top 10, was ranked 8th with a market cap of ~25 billion. While USDT does have ~2.6x times the valuation, USDC is slowly climbing up the ladder in terms of utilization.

In this article, we have identified recent developments which underline how USDC has managed to bridge the gap to USDT over the past few months.

Ethereum and DeFi: How USDC is stepping out of USDT’s shadow?

Over the past few months, USDT’s stablecoin supply has drastically dropped on Ethereum and USDC has slowly taken up more space. USDC’s growth has also emerged on the back of its growing influence with DeFi assets.

Source: Glassnode

According to data, ~50% of the USDC supply is currently sitting on smart contracts, which is valued at approximately ~$12.5 billion. In comparison, only 20% of USDT is presently locked under smart contracts. However, it is important to highlight the fact that USDC had almost 58% locked in smart contracts back in October 2020 while USDT only at 9%. USDT locked in smart contracts have gradually increased, while USDC’s situation has been much more turbulent.

Speaking about DeFi assets, MakerDAO, Compound, and AAVE are the largest accumulators of USDC, holding 23% of the supply.

Now, on the surface, this might look like a win for USDC over USDT, but we need to factor in the situation that USDC is a fully centralized stablecoin. It is controlled by Coinbase and Circle and DeFi is supposed to be non-reliant on centralized entities. In that magnitude, USDT is centralized as well, but there are fragments of decentralization within Tether which makes it less centralized when compared to USDC.

Is the competition real in terms of USDC taking over USDT?

At the moment, it is not even close. The amount of liquidity brought in major assets such as Bitcoin, Ethereum from USDT is enormous. According to coinlib.com, the scale of volumes flowing in/out of these assets is staggeringly dominated by Tether.

ETH volumes

BTC volumes

USDT is presently responsible for $8.85 billion of BTC trading volumes while $4.94 billion are associated with Ethereum. Right now, there is a drastic difference between the capital flows controlling USDT, USDC. USDC’s increasing stablecoin supply position in Ethereum does not exactly threaten Tether’s long-term dominance.