Cryptocurrency investors avoid Tether for USD coin during times of market turbulence

The collapse of a $32 billion cryptocurrency exchange has put the spotlight on stablecoins, the $145 billion lubricant that greases the entire digital asset sector. During times of uncertainty, stablecoins provide a safe haven for investors to park their funds and weather the storm. However, stablecoins are not identical and their popularity may depend on the financial climate.

One asset that appears to be benefiting from the current turmoil is USD Coin (USDC
USDC
), a dollar digital asset issued by Boston-based Circle Financial that has $42 billion outstanding. The stablecoin has seen inflows of more than $2 billion since exchange FTX began to slump around Nov. 7, largely due to its reputation as a transparent and trustworthy asset.

“The collapse of FTX raises the specter that if you truly want the most fundamentally reliable version of these innovations, you ultimately have to be your own actor, agent, and custodian,” says Dante Disparte, Chief Strategy Officer at Circle. “We have seen a flight to safety, a flight to quality, and USDC growth.”

However, investor uncertainty about USDT’s creditworthiness remains. The company has not produced a definitive audit of its reserves and is resisting efforts to open its books to outside observers. The company has issued periodic audits detailing its assets and liabilities, always purporting to demonstrate solvency. This year it enlisted the top five BDO Italia audit firms to improve reliability and released its third-quarter attestation last week. That report indicated that the company had at least $68 billion in assets against $67.8 billion in liabilities (representing all outstanding USDT). These assets include a mix of cash and cash equivalents combined with smaller proportions of illiquid investments. By contrast, Circle only invests assets in cash and U.S. Treasury bills. It also publishes the exact bonds held on a monthly basis up to the Cusip number and maturity date.

Interestingly, the FTX crash isn’t the first time investors have exited USDT for USDC. A similar trend unfolded in early May when stablecoin terraUSD and its sister token luna crashed, destroying $45 billion worth of assets. The USDT briefly de-pegged on May 12, falling to 95 cents, as short sellers tried to play on investor fears to push the asset further lower. In the following days USDC gained market share at the expense of USDT.

Despite these trends, it may be inaccurate to say that the USDC is on track to outperform the USDT. In May, the latter handled $16 billion in redemptions, meaning the tokens were traded in national currencies, or fiats, without issue. It processed $3 billion smoothly this week.

Once the market stabilized during the summer USDT, it recovered most of the losses against the USDC.

It is worth pointing out that USDT and USDC serve very different constituencies. USDT is seen primarily as a tool for traders, while USDC is more active in decentralized finance and marketed more as a tool for traditional banks.

Aside pointed out that 75% of all USDC is held off trade. This statistic may help allay fears that much of the tokens could be at risk of confiscation by exchanges if those assets were irresponsibly lent, but it also points to the fact that USDC is still looking for its true fit in the USD market. product in the world of bank and corporate payments. In contrast, USDT, which has $18 billion of assets on the exchange, or about a third of its market capitalization, is a trading linchpin.

These different value propositions could place ceilings on the amount of USDC that could replace USDT in the absence of a complete collapse of confidence in USDT.

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