main conclusions
Coinbase encouraged customers to exchange Tether for USD Coin, exempting them from fees Binance delisted USDC pairs last September to promote its own stablecoin, BUSD War between centralized stablecoins deepens DAI keeps decentralization burning, but faces an uphill battle for relevance as the model seems unscalable The stablecoin war is heating up. Coinbase, which co-founded stablecoin USDC, is the latest to go on the offensive. She made a blog post encouraging her users to exchange their USDT for USDC. “The events of the last few weeks have put some stablecoins to the test and we have seen a flight to safety. We believe that USD Coin (USDC) is a reliable and reputable stablecoin, so we are making it easy to exchange: starting today, we are waiving fees for global retail customers to convert USDT to USDC.” I’ve wondered for some time why Coinbase didn’t get more offensive and use their exchange to push holders into USDC. Of course, the cynic will say that this decision by Coinbase is to increase USDC holdings for extra revenue, as they have become a huge source of income for the company, as the interest rate on Treasury notes is now 4%. That makes sense, and that’s exactly what it is. But even so, such is the constant anxiety surrounding Tether, that it could also be a good thing for the wider ecosystem. The best-case scenario – as far-fetched as it sounds – is for Tether’s market cap to gracefully drop to zero. Whether Tether is good for it or not, the constant talk about it is negative for the entire industry.
Binance Kickstarts the Stablecoin War
Of the big five stablecoins, there has been some serious movement this year. Obviously, TerraUSD is the biggest, its shocking crash rocked the market. Since then, the decentralized torch has been passed to the DAI. But this is surrounded by its own problems, being criticized for being centralized in nature, due to its large USDC holdings. This led to him voting to switch to T-bills, while the latest plan is for it to “free float” as there is no other alternative if they want to pursue decentralization. In the past I have expressed my thoughts on DAI and they have not changed: I believe it has no future as the model simply does not scale. Oh, and a freely floating stablecoin isn’t a stablecoin either, by the way. As for centralized stablecoins, it was Binance that kickstarted this stablecoin war when it announced in September that it was delisting USDC pairs and automatically converting customer holdings to BUSD. If we trace the market share of stablecoins back to August, we can see that USDT and USDC have declined significantly while BUSD has risen.
What will happen next?
The chart above shows just how dominant the top three providers are, with DAI now having a market cap of $5.2 billion, a mere drop in the bucket. While this comes across as a worrying amount of centralization, the reality is that no one has cracked the code on how to create a decentralized stablecoin. So, like it or not, it will be centralization going forward. The question now is who wins among the titans at the top. This move by Coinbase is notable, as Binance had been seeing serious gains following the auto-conversion announcement. But Binance still lists USDT, as the most controversial stablecoin remains the most ingrained, absolutely vital to the entire ecosystem, and the most liquid pair by far. I don’t think this is a good thing, so in the eyes of the market, it’s good to see USDC make some moves here. Market share will be interesting to track again in a few months. Hey, maybe we’ll all be using CBDCs soon anyway.
