USDT Grows, USDC LagsAug 25, 2021
USDC was one of the most favored stablecoins, with exponential growth over 2021. This was, in part, due to higher confidence in USDC as it held reserves in cash compared to USDT’s reserve, which has higher risk through commercial paper (a form of unsecured debt) holdings. USDT’s underlying risks were thus higher than USDC’s. However, in a recent turn of events, USDC’s reserve was revealed to also have riskier assets like commercial papers and corporate bonds, albeit lesser than USDT. And that could’ve been one of the prompts for USDC’s large redemptions this month.
Coupled with the market run-up in the past month, USDT was in prime position to capitalize on inflows, issuing between $300 mn and $400 mn a day in mid-August.
Since then, Circle announced their desire to reallocate the assets backing USDC into cash and short-term U.S. Treasuries. This reduces solvency risk for USDC and will likely cause investor confidence in USDC to re-emerge.