The growth of Circle’s native stablecoin USD Coin over the past two months has been nothing short of astonishing, compared to its $66 billion rival giant Tether (USDT).
Notably, the USDC market cap has increased by 8.27% since May, reaching $55.9 billion on July 2. In contrast, USDT’s market valuation, which is now about $66.14 billion, has declined by more than 19 percent.
Based on the gap between their market capitalizations, USDC has not come close to challenging USDT’s dominance in the stablecoin market.
More specifically, in August 2020, the USDT to USDC market cap ratio exceeded “9”. However, as shown in the table below, it fell to 1.20 in July, the lowest on record.
Since Terra’s $40 billion “algorithmic stablecoin” failed in May, cryptocurrency investors have been skeptical of concerns that the same will happen with USDT.
The main reason for this is the rumor that Tether’s USDT token is not fully backed by cash and other traditional assets, as has been claimed.
What’s in Store for USDT
Because of this, short sellers have increased their bets that USDT will soon fall below its $1-peg. According to the Wall Street Journal, these bearish conditions could be worth “hundreds of millions” of dollars.
These bets assume that, in the event of a “bank run”, Tether will not be able to convert all of its USDT into dollars. As a result, the peg would break as people started selling their stablecoin at a loss.
In times of high market volatility, USDT has a history of deviating from or exceeding its $1 peg; However, it was more noticeable in its earlier years.
For example, in October 2018, the value of the token dropped as low as $0.85 (on Kraken) amid rumors that one of its affiliates, the crypto exchange Bitfinex—is bankrupt.
Similar circumstances following the May collapse of Terra resulted in a sudden drop in the value of USDT to $0.97. Nevertheless, the stablecoin consistently achieved its tie with the dollar.
In contrast, USDC Coin has only fallen below the typical $0.99-1 range since the beginning of 2018. During the “Covid Crash” in March 2020, it dropped to $0.97 and then rose to $1 and then again fell to $0.98 in the same month.
Tether’s chief technical officer, Paolo Ardoino, promised in June that one of the top 12 accounting firms would conduct a full audit of the company’s reserves. Currently, an accounting firm, MHA, provides quarterly verification of Tether reserves.
