New Changes in the Stablecoin Landscape: USDC Rises in the DeFi Field, Challenging the Dominance of USDT

In 2021, the stablecoin market exhibited a new development trend. Although USDT still dominates the exchanges, USDC has risen in the DeFi market, with various data showing that it is favored by DeFi users. At the same time, stablecoins are no longer just tools for crypto users to hedge against risks; they have also become an important compliant channel for traditional financial funds to enter the crypto and DeFi fields.

Stablecoins have always been a focal point in the cryptocurrency market, playing a key role in the decentralized space with a relatively centralized mechanism, especially in the trading and transfer scenarios of centralized exchanges, helping users reduce asset volatility risks and lock in profits.

In January of this year, the Office of the Comptroller of the Currency (OCC) of the U.S. Treasury Department issued a statement allowing U.S. banks to use U.S. dollar stablecoins for payments and settlements. This marks a recognition of the status of stablecoins by regulatory authorities, enabling banks to facilitate transactions for customers on independent node verification networks using stablecoins, and they may even issue stablecoins and exchange them for fiat currency.

In 2021, with the strong performance of the cryptocurrency market, the demand for stablecoins as a primary settlement asset surged. Major issuers frequently increased their issuance, and the total market value of stablecoins skyrocketed from $28 billion at the beginning of the year to $108.1 billion today.

For a long time, USDT has been questioned due to the lack of transparency in its reserves, and the market has been looking forward to new alternatives. Although compliant stablecoins like USDC have been continuously challenging USDT's position in recent years, USDT still holds an absolute advantage on centralized exchanges due to user habits.

In May of this year, the issuer of USDT first detailed the composition of its reserves. As of March 31, nearly 76% of its reserves were in cash or cash equivalents, including commercial paper, trust deposits, etc., while the remaining portion consisted of secured loans, bonds, and other investments (including Bitcoin).

Although the security of USDT has been initially ensured, its market position has changed. Currently, the total issuance of USDT is 64.3 billion USD, which has nearly tripled since the beginning of the year, accounting for about 58% of the total stablecoin supply. At the beginning of the year, this proportion was as high as 75%, indicating that USDT is losing some of its dominance, largely due to the explosive growth of the DeFi market.

This year, a large number of emerging DeFi projects have emerged, especially in the areas of yield, DEX, and lending. To maintain high liquidity, these projects have launched stablecoin liquidity mining activities, with annualized returns once exceeding 50%, but most have now dropped to around 10%.

In the DeFi market, for compliance and security reasons, most projects prefer to use ETH and USDC to establish trading pair liquidity pools. USDT no longer has the depth and liquidity similar to centralized exchanges, and users have more options due to the AMM mechanism. Therefore, the more compliant USDC has become the preferred stablecoin for DeFi users and project parties.

As of July 1, the locked amount of USDC in a certain DEX liquidity pool was $3.34 billion, more than double that of USDT. In terms of trading volume, the USDC trading pairs reached $6.02 billion, more than three times that of USDT, reflecting a clear user preference for trading with USDC.

On the lending platform with the highest TVL, the USDC deposit amount is $3.89 billion, and the borrowing amount is $2.77 billion, both of which are the highest on the platform. In contrast, the USDT deposit amount is only $0.95 billion, and the borrowing amount is $0.82 billion. These figures highlight the dominant position of USDC in the Decentralized Finance ecosystem.

USDC is not satisfied with its current role as a DeFi medium and hopes to become the main channel for traditional finance to enter the crypto and DeFi markets, challenging USDT from a higher dimension. USDC has always positioned itself with compliance as a selling point, with its issuer obtaining regulatory licenses in multiple countries and regions, recognized by traditional financial institutions. In March of this year, a certain payment giant announced that it would allow transactions to be settled using USDC.

In May, the issuer of USDC raised $440 million in financing, setting a record for the industry. The investors were mostly well-known institutions from the traditional finance sector. Subsequently, USDC accelerated its market promotion aimed at financial institutions, committed to building a payment and financial infrastructure native to digital currency.

In June, several institutions launched USDC savings yield products with an annual rate of about 4%. At the same time, they also introduced a DeFi API to facilitate institutional users in accessing various DeFi protocols. These measures have significantly lowered the barriers for traditional financial users to enter the DeFi market, and are expected to attract a large inflow of funds.

Since the beginning of this year, the supply of USDC has surged from $1.3 billion to $25.1 billion, an increase of nearly 20 times. In the coming months, USDC will also be issued on multiple blockchain networks, further consolidating its advantage in the Decentralized Finance market.

Currently, the landscape of stablecoins in the cryptocurrency market is becoming increasingly clear. USDT and USDC are the dual core drivers of market development, with USDT primarily serving centralized exchange scenarios, while USDC is dedicated to connecting traditional finance with the crypto world, enhancing institutional adoption rates. Other stablecoins like DAI and BUSD also have their specific application scenarios and positioning.

As the cryptocurrency market matures, the importance of stablecoins is increasing day by day. USDC has become the industry benchmark due to its compliance, just as a certain trading platform, although not the highest in trading volume, has become the most influential exchange due to its compliance.