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Decrypting DeFi is Decrypt's DeFi email newsletter. (art: Grant Kempster)

The market’s second-largest stablecoin has been taking a beating, with the market cap of Circle’s USDC hitting a two-year low.

Per CoinGecko, the market cap is now hovering just under $26 billion. This is a far cry from its high of $56 billion last June.

As for the competition, Tether’s USDT just a new high along the same metric, recently reaching $83 billion.


Experts weighed in, suggesting there are four key reasons for the token's slump.

The biggest headwind holding USDC down is likely the serious depegging event earlier this year. Amid the regional banking crisis in the United States, Circle revealed that it had some $3 billion caught up in the mess, dragging the stablecoin down to $0.87.

"The key reason is that USDC hasn't recovered from the banking crisis," 21Shares analyst Tom Wan told Decrypt. "Comparatively, USDT has a lower volatility as the banking crisis did not affect them as much."

Another has been the steady rise of interest rates, Bluechip’s chief economist Garett Jones told Decrypt. Bluechip is a non-profit stablecoin ratings platform.

“Holding USDC now is giving up a safe 4% to 5% per year,” he said. “And as people are figuring out high rates for bank accounts and [certificates of deposit] will likely stick around well into 2024, the cost of parking cash in USDC is growing.”


There’s also a key difference in each stablecoin’s issuance model.

Evgeny Gaevoy, the CEO and founder of the market maker Wintermute, shared on Twitter that people are more likely to sell USDC rather than USDT because—apparently—it's hard to burn USDT on the weekends. “Nobody is printing new USDT afterward,” he said, adding that Tether has both a 0.1% mint fee and a 0.1% redemption.

Gaevoy also told Decrypt that the way these two stablecoins are used in the market affects their market caps. He said that of the two use cases for digital dollars–collateral for perpetual trading and non-volatile liquidity–USDC is mostly meant for the latter.

“USDC is primarily used as dry powder on DeFi, while Tether is used as perp collateral. So to me, it makes sense that USDC is going down while Tether sort of stays the same,” he said, adding that perp volumes are falling less than spot trading volumes.

But does this mean the stablecoin race is officially over?

Not quite.

Circle is fighting hard to get its digital dollar back in more users' hands.

When asked for comment, a Circle spokesperson pointed Decrypt to a recent Bloomberg article outlining the firm's cash reserves and two tweet threads.


The threads referred to two key announcements.

On Wednesday, it announced an integration with Shopify, letting merchants enjoy “nearly free payment acceptance” when using the stablecoin. The firm also announced it would roll out the token to six additional blockchains, including the ultra-buzzy Base network.

Its ties with Coinbase go beyond its layer-2 network, too. The crypto exchange just acquired a minority stake in Circle, dissolving the duo’s Centre consortium in the process.

No matter the winner here, though, Bluechip’s Jones added that at least nothing’s blown up completely, which is a win.

“Maybe the real news here is that in crypto winter, the big asset-backed stablecoins have been able to liquidate, to shrink, to redeem their coins, without any major difficulties for customers,” he said. “It's no guarantee of what the future holds, but it's a good signal.”

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