We all know that cryptocurrencies can be volatile, making an option like stablecoins extremely useful for quickly providing shelter from volatility. Stable coins play a unique but practical role in the cryptocurrency economy and have grown in popularity over the years.
Given their widespread utility, it is imperative that stablecoins are reliable and, of course, stable. The collapse of the algorithmic stablecoin Terra in May showed exactly how important this is. This catastrophe highlighted the need for stablecoins to operate transparently, so that Investors and users can be sure that a situation like that of Terra [now Terra Classic (LUNC)] does not happen again.
Now that Terra has almost completely lost investor credibility, stablecoin users have flocked to two alternatives in particular: Tether (USDT) and USD Coin (USDC).
The problems of Tether
Tether is the largest stablecoin issuer of all cryptocurrencies and has been for some time. Since July 2018, its market cap has ranked in the top 10 of all cryptocurrencies. Since then, its market cap has increased by 3.500% and is arguably the most popular stablecoin on the market. However, the ascent to the summit was not easy.
In theory, stablecoin distributors should operate like a bank. They must maintain sufficient liquidity to be able to repay any user who wishes to redeem their stablecoin stakes. Maintaining this balance between distributed stablecoins and reserve assets ensures that stablecoins maintain their peg.
In recent years, Tether has become a familiar face in courtrooms due to growing skepticism that there is not an equal amount of value in its reserves compared to the number of stablecoins distributed. To date, three lawsuits have been filed and fines of tens of millions of dollars have been imposed. To remedy this bad press, Tether offered to provide the public with a third-party audit in July 2021, but has not yet done so.
The clearest choice
Meanwhile, the second most popular stablecoin, USD Coin or USDC, has taken a different approach to its venture. Rather than operating in obscurity, the financial technology firm behind USDC, Circle, has taken a stance of openness and transparency. A USDC balance sheet is published annually. An additional monthly statement provides information on the size of the reserve to ensure that it is equal to the amount of USDC distributed.
Despite the widespread decline in cryptocurrency prices in 2022 and the instability further exacerbated by the insolvency of cryptocurrency platforms such as Voyager and Celsius, the USDC's market capitalization has grown thanks to the search for more reliable options by stablecoin investors. . Since Terra's bankruptcy in May, USDC has grown nearly 15%. Today, it is the second highest-rated stablecoin in the world and the fourth-highest-rated cryptocurrency by market capitalization, with a value of approximately $ 55 billion. Over the same time frame, Tether's market value has fallen by more than 20%, but it still holds its position as the largest stablecoin with a market value of around $ 66 billion. At one point in the year, the difference between the two market caps was $ 40 billion. USDC is hot on Tether's heels and could overtake it if current trends continue.
The past few months have been far from stable for the cryptocurrency economy. Hedge funds have gone bankrupt, lending platforms have gone bankrupt, and some cryptocurrencies are now almost entirely worthless. It's refreshing to see a company like Circle embrace a reputation for transparency and trustworthiness. After all, that's what cryptocurrencies are all about. Instead of taking risks with Tether and a potential Earth-like disaster, investors should consider allocating their stablecoin holdings to a safer and more transparent option, such as USDC.
