By Daniel Ramirez Escudero

Compiled by: TaxDAO

As institutional investors enter the cryptocurrency market, Tether’s hegemony over USDT may change. Tether has long dominated the stablecoin space, thanks in large part to USDT’s status as the first stablecoin backed by a fiat currency.

However, in the past few years, new strong competitors have entered the stablecoin market, forming a strong impact on USDT. The transaction volume of Circle's stablecoin USD Coin has been on an upward trend since 2024. According to data from payment giant Visa, USDC's monthly transaction volume exceeded USDT for the first time in December 2023.

In March 2024, USDC volume began to rise steadily, maintaining its dominance while USDT volume declined. On March 24, 2024, USDC closed the week with nearly five times the volume of USDT. On April 21, 2024, USDT's weekly volume continued its downward trend, shrinking to $89 billion, while USDC increased to $455 billion.

Although USDC was launched in 2018, it already accounts for 20% of the total stablecoin market.

The battle for stablecoin leadership is clearly between USDT and USDC, as they together account for 90% of the entire stablecoin market, according to a report published by cryptocurrency exchange OKX in January 2024. USDC is gaining adoption among cryptocurrency institutions, which could threaten USDT’s hegemony given the important role of institutional investors, according to on-chain data.

The cryptocurrency market has evolved significantly over the years, from a market rife with scam projects during the initial coin offering (ICO) era to one that is set to attract major institutional investors following the approval of a spot Bitcoin exchange-traded fund earlier this year.

In a May 2 post on X, former Binance CEO Changpeng Zhao said the cryptocurrency market has matured and may have entered a “new phase” in which “compliance is extremely important.”

This focus on compliance is sparking competition among companies looking to attract a new wave of investors to the cryptocurrency market — meaning that compliant stablecoins will stand out.

In this regard, USDT faces challenges as reports have previously questioned the authenticity of its reserves.

“USDT is an offshore stablecoin that lacks transparency and regulation, while USDC is under close scrutiny from U.S. authorities,” YouHodler’s head of markets Ruslan Lienkha told Cointelegraph.

Tether is headquartered in the British Virgin Islands, which is considered a tax haven for offshore banking. In contrast, USDC issuer Circle is subject to U.S. jurisdiction because it is headquartered in Boston, Massachusetts. USDC's strategy of presenting itself as a fully regulated, transparent stablecoin may prompt Tether to try to reshape its public image. On April 1, Tether completed an independent audit from the American Institute of Certified Public Accountants, which is known as the "gold standard."

Upcoming regulatory frameworks in the United States and Europe could be a factor in attracting compliant users to use USDC instead of USDT.

On April 17, the U.S. Congress introduced the Lummis-Gillibrand Payment Stablecoin Act. If it becomes law, it will affect all stablecoins in the U.S. market. If Tether hopes to gain approval from U.S. authorities, it will need to change its offshore attributes to avoid missing out on one of the world's largest markets.

In the EU market, the upcoming regulatory framework for crypto asset markets will require stablecoin issuers to register as electronic money issuers starting June 30.

With the regulations expected to fully take effect later this year, Circle puts EURC, a sister version of USDC pegged to the euro, in a favorable position.

On March 21, 2023, Circle applied for a digital asset service provider license from the French regulator. These licenses will grant Circle the status of a registered digital asset service provider, which will "enable Circle to launch its flagship product on the European market" and "begin to become a MiCA-compliant e-money token under the new regime." Tether has not yet applied to become an e-money issuer in the EU.

The consolidation of USDC trading volume may be an issue that Tether should not ignore. If it becomes the norm, Tether may lose its crown as the king of stablecoins.