The stablecoin landscape is being reshaped, with USDC leading new trends in Decentralized Finance

In 2021, the stablecoin market presented a new pattern. Although USDT's position on exchanges remains solid, USDC has gained an advantage in the Decentralized Finance realm. Data indicates that USDC is more favored by DeFi users. At the same time, stablecoins are no longer just tools for risk reduction; they have also become an important bridge for traditional finance to enter the crypto market and DeFi space.

Stablecoins have always been the focus of the crypto market. They play an important role in the decentralized cryptocurrency ecosystem, especially in trading and transfer scenarios on centralized exchanges, helping users reduce asset volatility risk and lock in profits.

In January of this year, U.S. regulators officially recognized the status of stablecoins. The U.S. Department of the Treasury's Office of the Comptroller of the Currency announced that U.S. banks are allowed to use USD stablecoins for payments and settlements. This means that banks can use stablecoins to facilitate customer transactions on independently verified networks, and they can even issue stablecoins and exchange them for fiat currency.

In this year's strong cryptocurrency market, the demand for stablecoins as the main settlement asset has surged. Major stablecoin issuers have frequently increased their issuance, with the total market value of stablecoins skyrocketing from $28 billion at the beginning of the year to $108.1 billion.

In the past few years, the market has been looking forward to the emergence of a new stablecoin to replace the leading position of USDT in order to reduce potential risks. Although compliant stablecoins like USDC continue to challenge USDT, due to user habits, USDT still dominates centralized exchanges.

In May of this year, the issuer of USDT disclosed reserve data for the first time in detail. As of March 31, 2021, nearly 76% of Tether's reserves were in cash or cash equivalents, including commercial paper, trust deposits, and cash, while the remainder consisted of secured loans, bonds, and other investments (including Bitcoin).

Although the security of USDT has been initially confirmed, its market position has changed. Data shows that the total issuance of USDT is $64.3 billion, nearly tripling since the beginning of the year, accounting for 58% of the total stablecoin supply. However, this proportion was as high as 75% at the beginning of the year, indicating that USDT's dominance is declining, largely due to the explosive growth of the DeFi market.

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

Data shows that the usage and trading volume of USDC far exceed that of USDT on major Decentralized Finance platforms. This reflects that USDC has become the most preferred stablecoin asset for DeFi users, playing a key role in trading and lending activities.

USDC is not satisfied with its current role in the DeFi ecosystem and hopes to become the main gateway for traditional finance to enter the cryptocurrency and DeFi markets. USDC has always emphasized compliance as its selling point, and its issuer has obtained regulatory licenses in multiple countries and regions.

In March of this year, Visa announced that it would allow transactions on its payment network to be settled using USDC. In May, Circle secured $440 million in funding, setting a new record for a single financing round in the cryptocurrency industry. Subsequently, Circle accelerated the marketing of USDC to financial institutions, aiming to establish a complete digital currency payment and financial infrastructure.

In June, several institutions launched USDC savings yield products with an annualized return of about 4%. These products simplify the process for traditional users to enter the DeFi market and are expected to attract a large amount of traditional financial capital into the crypto market, injecting more USD liquidity into DeFi.

Driven by both the demand in the DeFi market and traditional financial needs, the supply of USDC has increased nearly 20 times since the beginning of the year, from $1.3 billion to $25.1 billion. In the coming months, USDC will also be issued on multiple blockchain networks, further expanding its advantages in the DeFi market.

Currently, the stablecoin landscape in the cryptocurrency market is becoming increasingly clear. USDT and USDC have become the dual core driving forces of the market, with USDT mainly serving trading and transfers on centralized exchanges, while USDC aims to bridge traditional finance and the crypto world, increasing financial institutions' adoption of cryptocurrency, and helping traditional funds enjoy DeFi services in a compliant and convenient manner.

Other stablecoins such as DAI and BUSD also have their specific application scenarios and positioning. As the cryptocurrency market matures, the role of stablecoins is becoming increasingly important. USDC, with its compliance, has become a benchmark in the industry, just like Coinbase's position in the exchange sector. Although its trading volume is not the highest, it remains one of the most influential participants in the market.