The battle of stablecoins is heating up
Ahhhhh stablecoins.
The crypto equivalent of vanilla ice cream.
Irresistibly simple, yet fundamental to some of the best desserts.
Their values are tied directly to real world assets; like the US Dollar for example.
Now, the biggest stablecoin - Tether (USDT) - is being challenged for top position by Circle’s stablecoin, USDC.
In order to explain what’s going on, let’s play a quick game of same, same, but different:
USDT is built on the Ethereum blockchain - same as USDC.
USDT is backed by US Dollars - same as USDC.
USDT has a history of going below or above its $1 peg during extreme market volatility, even getting as low as $0.85 in 2018 - different to USDC which has only ever dropped as low as $0.97 during the ‘Covid-19 crash’ in March 2020.
Given USDT and USDC are really similar, why has USDC’s market cap (i.e. it's total value) increased by 8.27% since May whereas USDT’s has shrunk by over -19% in the same period of time?
(Great question, we asked the same).
Ultimately, it’s all to do with trust.
There’s speculation that Tether’s USDT tokens are not 100% backed by cash, as they claim.
As a result, some people (with deep pockets) think it will soon lose its peg and become victim to crypto’s next ‘bank run’ (similar to what happened to LUNA in May).
On the other side of the coin there’s USDC, which is audited monthly by Grant Thornton - a leading global accounting firm.
People trust they are at no risk of a bank run given their cash reserves.
So, what’s next in this chapter? We’re not sure.
(Although the market cap trendline isn’t looking great for USDT).
Let’s hope the folks behind USDT’s Tether have made sure their USD cash reserves are sufficient enough to stop a bank run if it loses its peg.
We don't need another LUNA.
