The Fastest Growing Stablecoin
While Tether (USDT) is the largest stablecoin today, the market has increasingly adopted USDC as the emergent stablecoin of choice. Today, Centre has issued nearly $6.5 billion USDC on Ethereum alone, an increase of more than 10x from just a year ago. USDC’s adoption has propelled the asset to becoming the second largest stablecoin.
But why has USDC seen such success compared to other stablecoins? This post will delve into what USDC is, why it differs from other stablecoins, and why it has seen an exponential growth in adoption this past year.
What even is USDC?
USDC is a dollar-backed stablecoin. A dollar-backed stablecoin means that for every USDC that has been issued, there is a dollar sitting in a bank account somewhere backing the stablecoin. At any time, USDC holders can convert their USDC into dollars on exchanges like Coinbase for no cost. Similarly, users with dollars can convert into USDC on exchanges like Coinbase.
While most popular on Ethereum, Centre has also issued USDC on other blockchains such as Algorand, Solana, and Stellar.
What makes USDC special?
While DeFi (decentralized finance) has driven adoption stablecoins, the market has embraced USDC at the fastest rate.
There are many reasons for why USDC has been the fastest growing stablecoin. One of the central reasons is that the market trusts Circle and Coinbase to issue USDC appropraitely. The market views Coinbase and Circle as incredibly conservative companies who closely adhere to the law.
Furthermore, Circle even cooperate with the US government on using USDC as a tool for foreign policy. In fact, the US government coordinated with Circle to distribute USDC to healthcare workers in Venezuela. In this way, they were able to bypass the traditional financial system that dictator Maduro controls.
The close relationship both Circle and Coinbase have with the US government conveys trust to the market. The thinking here is that the government is less likely to restrictively regulate companies who are actively cooperating.
Another reason why USDC has become the fastest rising stablecoin is that USDT has experienced trust issues recently. Specifically, in April 2019, Tether’s lawyers admitted to the public that there was not a dollar for every Tether issued sitting in a bank account supporting the digital asset. Tether ended up settling this issue with the NYAG for $18.5 million, in addition to other requirements that compel Tether to disclose their cash and cash equivalent to the NYAG and disclose any transactions between corporate entities. Many people would rather use USDC over USDT because of USDT's historical backing issues and lack of transparency of their banking partners.