Changes in the Stablecoin Market Landscape: USDC Rises in the Decentralized Finance Field

In 2021, the stablecoin market presented a new pattern. Although USDT still maintains its dominant position on exchanges, USDC has gained an advantage in the Decentralized Finance market. Data shows that USDC is favored by DeFi users. Meanwhile, stablecoins are no longer just tools for crypto users to hedge against risks; they have also become an important compliance channel for traditional financial funds entering the crypto and DeFi markets.

Stablecoins have always been the focus of the crypto market. They play a key role in the decentralized cryptocurrency space with a relatively centralized mechanism, especially in trading and transfer scenarios on centralized exchanges, helping users reduce the volatility risk of crypto assets and lock in profits.

The status of stablecoins has been recognized by U.S. regulators. In January 2021, the Office of the Comptroller of the Currency (OCC) announced that U.S. banks are allowed to use USD stablecoins for payments and settlements. Banks can use stablecoins to facilitate customer payment transactions on independent node verification networks, including issuing stablecoins and exchanging them for fiat currency.

In the strong cryptocurrency market in 2021, the demand for stablecoins as a major settlement asset surged. Major issuers frequently increased their issuance, and the total market value of stablecoins grew from 28 billion USD at the beginning of the year to 108.1 billion USD.

In recent years, the market has been anticipating the emergence of new stablecoins to replace USDT's dominance in order to reduce potential risks. Although compliant stablecoins like USDC and BUSD have posed challenges, USDT still maintains an absolute advantage on centralized exchanges due to user habits.

In May 2021, the issuer of USDT first disclosed detailed reserve data. As of March 31, nearly 76% of Tether's reserves are in cash or cash equivalents, including commercial paper, trust deposits, and cash, while the remaining portion includes secured loans, bonds, and other investments.

The security of USDT has been initially guaranteed, but its market position has changed. Currently, the total issuance of USDT is 64.3 billion USD, which is nearly three times higher than at the beginning of the year, accounting for about 58% of the total stablecoin supply. At the beginning of the year, this ratio was as high as 75%, indicating that the industry dominance of USDT is declining, mainly due to the explosive growth of the Decentralized Finance market.

To maintain high liquidity, DeFi projects have launched stablecoin liquidity mining activities. For compliance and security reasons, most projects prefer to use ETH and USDC to establish trading pair liquidity pools. USDC has become the preferred stablecoin for DeFi users and projects.

Data shows that on major Decentralized Finance platforms, the locked amount, trading volume, and lending volume of USDC significantly lead those of USDT. This reflects that USDC has become the most favored stablecoin asset among DeFi users, playing an irreplaceable role in the DeFi ecosystem.

USDC is committed to becoming the primary channel for traditional finance to enter the cryptocurrency and Decentralized Finance markets. Its issuers, Circle and Coinbase, are both highly positioned compliant enterprises in the industry. In March of this year, Visa announced it would allow USDC to settle transactions on its payment network. In May, Circle secured $440 million in funding, making it the largest single financing in the crypto industry.

In June, Circle, Compound, and Coinbase successively launched USDC savings yield products with an annual yield of about 4%. Circle also launched a DeFi API, allowing institutional users to easily access various DeFi protocols. These initiatives will attract more traditional financial capital into the DeFi market.

Driven by multiple demands, the supply of USDC has increased nearly 20 times since the beginning of the year, reaching 25.1 billion USD. In the coming months, USDC will also be issued on multiple blockchain networks, further expanding its advantages in the Decentralized Finance market.

Currently, the stablecoin landscape in the cryptocurrency market has become clearer. USDT and USDC are the dual cores driving market development, with USDT primarily serving centralized exchange scenarios, while USDC is dedicated to connecting traditional finance with the crypto world. DAI and BUSD have their own positions in specific scenarios, while other stablecoins exist to supplement the market.

As the cryptocurrency market matures, the role of stablecoins becomes increasingly important. USDC is becoming the benchmark in this field and driving development, similar to how Coinbase has become the most influential exchange with its compliance.