Investors have moved about $1.6 billion from USDC to rival stablecoin USDT in the past month, as regulators in the US put a limit on cryptocurrency companies.
A significant amount of money moved into USDT after August 10, when USDC publishers Circle froze $75,000 USDC from users connected to Tornado Cash, the crypto mixer sanctioned by the US government on money laundering allegations.
Circle said it has frozen the money to comply with US sanctions law. But the decision sparked widespread criticism from crypto fundamentalists, who feared that corporate intrusion had eroded the cryptocurrency ethos of privacy and decentralization.
Investors flee USDC
According to Coinmarketcap, the total market cap of Tether’s eponymous USDT stablecoin has increased by about $1 billion to $67.43 billion in the five days following Circle’s blacklisting of Tornado Cash-related wallet addresses.
USDC’s total market value fell by more than $500 million over the same period, the data shows, suggesting that the outstanding balance in USDT transfers may have come from elsewhere.
In the past four weeks, USDC’s market cap has fallen 2.3%, or $1.3 billion, to $53.5 billion as of press time. That compares to a 2.4%, or $1.57 billion, increase in USDT’s total market capitalization 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 bigger players felt safer with their money outside 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 that support its USDT stablecoin, Centre, the US consortium behind USDC, has been criticized for working with government authorities.
Since the launch of USDC in September 2018, Center has now banned 81 wallet addresses in accordance with US government sanctions against crypto companies, individuals or groups.
Tether had its own problems in May when panicked investors withdrew about $7 billion in USDT within days of the Terra blockchain’s spectacular collapse.
‘Crypto really needs decentralized stables’
Ego Huang, CEO of crypto derivatives trading platform Deepcoin, told Be[In]Crypto that USDC is hampered by assumptions of its “heavy reliance on the US government’s regulatory regime.”
“[This makes] it is highly susceptible to seizure by US authorities,” he said. “The fact is, investors are not sentimental about a stablecoin issuer. Instead, they are interested in the safety of their money and avoiding the intervention of centralized authorities.”
Huang added that the lack of defined regulation has been “particularly difficult and no matter how Circle twists the situation to avoid a liquidity exodus from USDC, investors will still need insurance or safety net, which they can find in USDT. “
Circle CEO Jeremy Allaire recently pledged increased engagement to address the privacy issues that haunted the company.
He said the Tornado Cash “regulatory intervention was flawed”. Allaire is committed to increased policy engagement action to better protect user privacy in line with the fundamental principles of crypto.
Iakov Levin, founder and CEO of crypto investment platform Midas Investments, said the “tornado Cash situation shows that no one is immune from the influence of regulators.”
“So if they want to interfere with any part of the evolving decentralized economy, then absolutely any protocol can replace Tornado,” Levin told Be[In]cryptography. Continuing on, he said:
“Users’ switch 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 block wallets. Therefore, the crypto market needs overcollateralized algorithmic stablecoins like FRAX and LUSD.”
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