Tether emerges as a winner as Stablecoins wobble amid uncertainty over Binance USD token

The world of stablecoins suddenly looks shaky.

Seismic shifts could be happening in the $137 billion (approximately Rs. 11,35,000 crore) market after New York-based Paxos Trust Company, which coins Binance’s stablecoin, said it would stop issuing new BUSD tokens after U.S. regulators labeled the asset an unregistered security.

The US move has left investors questioning the future shape of the market for stablecoins, tokens typically backed by traditional assets such as dollars and US government bonds to tame the wild swings that characterize cryptocurrencies.

However, the immediate impact was not negative for the stablecoin market as a whole; it has actually seen its total value grow by $2 billion (approximately Rs. 16,570 crore) since the Paxos announcement on February 13.

“There is far too much demand for dollar-based stablecoins for them to disappear,” said Alex Miller, CEO of bitcoin developer network Hiro.

Instead, rivals are vying for the woes of BUSD, the world’s third-largest stablecoin, whose market value has dwindled to $12.9 billion (approximately Rs. 11,06,900 crore) from $16.1 billion (approximately Rs. 1,33,400 crore), to be cashed. with a market share of 12.1 percent to 9.4 percent, according to CoinGecko.com.

Market leader Tether (USDT) has been a major beneficiary, adding $1.9 billion (approximately Rs. 15,740 crore) to its market cap since the news to reach $70.3 billion (approximately Rs. 5,82,350 crore). It now controls 52.6 percent of the stablecoin market, up from just over 51 percent.

Circle’s USD Coin, the second largest stablecoin, rose by more than $700 million (roughly Rs. 5,800 core) to $42 billion (roughly Rs. 3,47,990), increasing its market share from 30.9 percent to 31.3 percent .

And the winner is… Tether

Stablecoins are an important part of the cryptosphere, with their more stable value meaning they are used to facilitate transfers between cryptocurrencies or into common money. Traders also use these tokens to hedge their positions, which is why falling market value is associated with falling liquidity and leverage in the broader crypto market.

Markus Thielen, head of research and strategy at crypto firm Matrixport, said the Paxos announcement and subsequent BUSD slump had triggered a major shift in the stablecoin market.

“And chain wins.”

The broader impact on the crypto market also appears to have been contained, as bitcoin is up 14% over the past week to $24,902 (approximately Rs. 20,63,255), allaying concerns that central banks will raise rates. will continue to increase.

One of the reasons for the optimistic response is that BUSD is largely used to trade on Binance, the world’s largest crypto trading platform, while its use in other parts of the crypto world is limited, according to analytics firm Kaiko.

“Although BUSD is used in DeFi, it is not systemically important to the ecosystem,” said Riyad Carey of Kaiko.

Bet on future prizes

Developments around Binance’s stablecoin have also boosted trading on competing platforms; since Feb. 1, Binance’s bitcoin liquidity is down nearly 30 percent, while Coinbase’s in the US is up nearly 15 percent, according to Kaiko.

Daily open interest for bitcoin to BUSD perpetual swaps has fallen from more than 17,000 bitcoin in early February to 13,726 bitcoin, Binance data showed, pointing to traders withdrawing bets on future prices for BUSD.

While some uncertainty remains about the impact of the U.S. Securities and Exchange Commission ruling on other stablecoins, the market appears to have adjusted, according to some crypto players.

“For now, this is unlikely to represent a critical major structural change in the market,” said Vetle Lunde, an analyst at Arcane Research. He added, “Enforcement against USDC or the non-US domiciled USDT may have more dramatic implications.”

© Thomson Reuters 2023

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