Investors moved about $1.6 billion from USDC to rival stablecoin USDT over the past month as regulators in the United States cracked down on cryptocurrency companies.
A significant amount was switched to USDT after August 10, when Circle, issuers of USDC, froze $75,000 USDC belonging to users associated with Tornado Cash, the crypto mixer sanctioned by the US government on money laundering charges.
Circle said it froze the money to comply with US sanctions law. But the decision provoked widespread criticism from crypto fundamentalists, concerned that corporate intrusion had eroded the cryptocurrency ethos of privacy and decentralization.
Investors are fleeing the USDC
According to Coinmarketcap, the total market capitalization of Tether’s eponymous USDT stablecoin swelled by about $1 billion to $67.43 billion in the five days following the blacklisting of Tornado Cash-related wallet addresses by Circle.
USDC’s total market capitalization fell by more than $500 million in the same period, the data shows, suggesting that the outstanding balance in transfers to USDT may have originated elsewhere.
Over the past four weeks, USDC’s market cap has fallen 2.3%, or $1.3 billion, to $53.5 billion at press time. That compares to a 2.4%, or $1.57 billion, increase in the total market capitalization of USDT over the same period.
“After the recent regulatory push in the US against crypto companies and tokens, I wouldn’t be surprised if institutions and larger players felt safer with their money outside of the US,” tweeted Gabor Gurbacs, strategy advisor at asset manager VanEck.
Both USDC and USDT are pegged to the dollar. While Hong Kong-based Tether has often been accused of a lack of transparency about the reserves backing its USDT stablecoin, Centre, the American consortium behind USDC, is criticized for cozying up to government authorities.
Since the launch of USDC in September 2018, the Center has now banned 81 wallet addresses in compliance with US government sanctions against crypto firms, individuals or groups.
Tether had its own problems in May when panicked investors pulled out $7 billion worth of USDT within days of the spectacular collapse of the Terra blockchain.
“Crypto Really Needs Decentralized Stables”
Ego Huang, CEO of crypto derivatives trading platform Deepcoin, told Be[In]Crypto at USDC is hampered by assumptions about its “close dependence on the US government’s regulatory regime.”
“[This makes] it is highly susceptible to being seized by US authorities, he said. “In fact, investors are not sentimental about any stablecoin issuer. Instead, they are interested in the safety of their funds and avoiding the intervention of centralized authorities.”
Huang added that the lack of defined regulation was “a particularly tough one, and no matter how Circle spins the situation to prevent a liquidity exodus from USDC, investors will still need an insurance or safety net, which they can find in USDT.”
Circle CEO Jeremy Allaire recently pledged more commitment to address privacy concerns that have dogged the company.
He said Tornado Cash’s “regulatory intervention was lacking.” Allaire is committed to increasing action on policy engagement to better protect users’ privacy in line with the fundamental principles of crypto.
Iakov Levin, founder and CEO of crypto investment platform Midas Investments, said that “the situation with Tornado Cash shows that no one is immune to the influence of regulators.”
“So, if they want to disrupt any part of the evolving decentralized economy, then absolutely any protocol can find itself in Tornado’s place,” Levin told Be.[In]Crypto. He went on to say:
“Users’ transition from USDC to USDT is just a shift from one centralized stablecoin to another. No one can guarantee that USDT will not release similar sanctions and start blocking wallets. That’s why the crypto market needs oversecured algorithmic stablecoins like FRAX and LUSD.”
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