Circle CEO Jeremy Allaire's sense of crisis seems to be overflowing. Recently, in an interview with Bloomberg, Jeremy Allaire responded that Circle has over $1 billion in cash to buffer the pressure in the face of competition from non-cryptocurrency companies such as PayPal. Furthermore, Circle announced yesterday that Coinbase is about to invest, and USDC will be launched on 6 new chains with the support of Coinbase.
For Circle, its sense of crisis is probably not only from the invasion of Web2 giants such as PayPal, but also from the pressure given by stablecoin old competitors such as USDT and DAI.
Currently, the fact facing Circle is that the market value of USDC has dropped from about $450 billion at the beginning of the year to approximately $260 billion, almost halved, reaching the lowest level in nearly 2 years. Meanwhile, the market share of USDT, DAI, and other strong competitors has clearly increased or rebounded. Compared to the beginning of the year, the market value of USDT has increased by 25.7% to $83 billion, while DAI, after experiencing a period of decline following the USDC unpegging incident, has seen its market value rise by over 20% in the past two months.
Amid the crisis of the declining market value of USDC, we can also see a reshaping of the stablecoin market this year. On one hand, after the regulatory crackdown on BUSD, the market share of USDC, which was one of the top five stablecoins, has undergone significant changes. On the other hand, old blue-chip DeFi projects such as Curve and Aave are actively launching native stablecoins, and some emerging stablecoin forces leveraging LSD and RWA are also on the rise. With the introduction of the stablecoin PYUSD by Web2 payment giant PayPal, another important factor has been added to the stablecoin market.
In addition to the changes in the stablecoin project landscape, crypto core regions such as the United States, Singapore, and Hong Kong are also seeing hidden currents in the stablecoin regulatory competition. Currently, the Monetary Authority of Singapore has taken the lead in issuing the "MAS Finalized Stablecoin Regulatory Framework," providing a reference for promoting compliant stablecoins.
Nearly Halved Market Value, USDC's Anxiety and Response
Regarding the decline in the market value of USDC, although Circle CEO Jeremy Allaire attributed part of it to Binance's decision a year ago to reduce the adoption of USDC in favor of promoting its own stablecoin BUSD in an interview with Bloomberg, the fact is that, apart from Binance reducing the adoption of USDC, USDC has still been shrouded in the shadow of this crisis since the unpegging incident caused by the run on Silicon Valley Bank at the beginning of the year.
Due to the security risks brought about by the unpegging of USDC, major holders of the original USDC, led by Binance and MakerDAO, have reduced or even completely sold off their USDC reserves. Recently, Binance was reported to have sold a large amount of USDC for BTC and ETH as reserve assets. The latest Proof of Reserves (PoR) released by Binance shows that Binance's USDC balance decreased from $3.4 billion on March 1 to $23.9 million on May 1. Chain analyst Aleksandar Djakovic pointed out that after the collapse of Silvergate and Signature banks, Binance purchased approximately 100,000 BTC and 550,000 ETH, totaling about $3.5 billion, during the period from March 12 to May 1, which is the same as the surplus amount of USDC they held, indicating that Binance sold USDC for BTC and ETH.
MakerDAO, on the other hand, exchanged a large amount of USDC for dollars to purchase US bonds. From 2021 to May 2023, the PSM stablecoin (over 70% of which is USDC) assets in MakerDAO's balance sheet accounted for over half of MakerDAO's assets in most cases. However, after mid-May 2021, the proportion of MakerDAO's RWA assets skyrocketed to about half, while its stablecoin assets dropped to less than 15%. As of now, MakerDAO's stablecoin assets are about $700 million, while its RWA assets are about $2.5 billion. In March before the unpegging of USDC, MakerDAO's stablecoin assets reached nearly $4 billion. This means that at least $2 billion of USDC in MakerDAO's asset reserves may have been converted into US bonds and other RWA assets.
Not only decentralized stablecoin protocol MakerDAO has significantly reduced its USDC assets, but algorithmic stablecoin Frax has also been continuously exploring the introduction of RWA to reduce its reliance on USDC after the unpegging incident. The upcoming Frax Finance V3 upgrade will focus on changing this situation. Sam Kazemian, the founder of Frax Finance, mentioned the idea behind this upgrade during an interaction with the community: FRAX has been operating under the assumption that it is not decoupled from USDC. But when USDC is unpegged, the redemption value of 0.95 USDC + 0.05 USD FXS is less than $1.00. Therefore, FRAX v3 will change this situation through many new AMOs and features tied to "sovereign dollars."
With Binance, MakerDAO, and others selling off a large amount of USDC, the market value of USDC has continued to decline. According to CMC data, the market value of USDC has dropped by 42% from about $450 billion at the beginning of the year to approximately $260 billion, and has been on a downward trend for six consecutive months.
Furthermore, with the recent announcement by traditional payment giant PayPal to launch PYUSD, the competitive pressure facing USDC has intensified. USDC and PYUSD can be said to be direct competitors. Both are stablecoins regulated by the United States, with similar customer bases, while PYUSD, as a Web3 payment giant, has the advantage of a traffic of 400 million people and a strong brand.
In the face of this competition between new and old forces, Circle and its CEO Jeremy Allaire have been active recently. On one hand, in an interview with Bloomberg, Jeremy Allaire revealed Circle's revenue strength, indicating that despite the decline in market value, Circle's operations are still performing well. Jeremy Allaire stated that Circle's revenue for the first half of this year was $779 million, exceeding the full-year revenue of $772 million in 2022; the adjusted EBITDA for the first half of the year was $219 million, also surpassing the $150 million in revenue for the full year of 2022. However, the portion of revenue related to USDC was not disclosed.
In response to the competition from PYUSD, Jeremy Allaire stated that the balance sheet has $1 billion in funds to cope with the competition. In addition, Jeremy Allaire also wrote that despite the speculation about the United States, the adoption rate of USDC outside the United States has reached 70%, with some of the fastest-growing regions being emerging and developing markets. Jeremy Allaire seems to be implying that the main customer base of PYUSD is in the United States, while USDC is mainly used outside the United States, and the competition between the two is not so intense.
Beyond the anxiety, USDC is also taking some measures to address the decline in its market value and the pressure from new competitors. On one hand, Circle is focusing on developing emerging markets outside the United States, such as obtaining a cryptocurrency payment license in Singapore and considering issuing stablecoins in Japan according to new regulations.
On the other hand, Circle is also making efforts in ecosystem partnerships. According to an official announcement from Coinbase yesterday, Circle will welcome an investment from Coinbase, and with the support of Coinbase, USDC also plans to launch on 6 new blockchains. It is worth mentioning that the collaboration between stablecoins and exchanges has had successful precedents, such as the cooperation between USDT and Bitfinex, and BUSD and Binance, which has indeed brought about a win-win situation.
Previously, Circle also reached an agreement with OKX to use USDC as payment for gas fees, launched USDC on Arbitrum, and introduced a "wallet-as-a-service" platform for developers. In the future, it will also launch cross-chain payments for stablecoins and a simplified smart contract development platform. Additionally, Circle recently announced a $100,000 USDC-funded ecosystem support program to attract more ecosystem partners to use USDC. Furthermore, Circle has opened up its reserves, restarted the purchase of US government bonds as USDC reserve assets to obtain higher returns, and reduced operating costs through layoffs.
New Battlefields for Stablecoins: Regulation, RWA, Yield, Web2 Giants
As the market value of USDC continues to decline, the stablecoin market landscape is also being reshaped.
Firstly, according to the "Stablecoin and CBDC Report" released by the cryptocurrency analysis platform CCData, the total market value of stablecoins has continuously declined to the range of $124 billion, setting a record low for stablecoin market value since August 2021, and marking the 17th consecutive month of decline in stablecoin market value.
During the continuous weak period of the overall market value of stablecoins, the stablecoin market has seen significant changes and fluctuations from the beginning of the year to the present, and the market value rankings of the leading stablecoins have undergone significant changes compared to the beginning of the year.
First, in February of this year, BUSD faced regulatory scrutiny. The New York Department of Financial Services (NYDFS) announced an investigation into BUSD issuer Paxos, and shortly after, the U.S. Securities and Exchange Commission (SEC) also announced a lawsuit against Paxos related to BUSD issues. As a result of being regulated and squeezed consecutively, BUSD's market value dropped from $16 billion in February to $3.3 billion, a decrease of nearly 80%, relinquishing its position as the third largest stablecoin after USDT and USDC to DAI. ![Stablecoin landscape reshaping: Can Circle's investment from Coinbase alleviate its "market value anxiety"?aicoin图3](https://static.aicoinstorge.com/attachment/article/20230824/169285381713384.jpg "Stablecoin landscape reshaping: Can Circle's investment from Coinbase alleviate its "market value anxiety"?aicoin图3")
Then, due to the run on Silicon Valley Bank, USDC, which held reserves, also experienced the risk of a run and unpegging. This also led to major holders of USDC reserves, such as Binance and MakerDAO, selling off USDC and reducing their reliance on it, as mentioned earlier. Currently, USDC has dropped from about $45 billion at the beginning of the year to approximately $26 billion, almost halved, reaching the lowest level in nearly 2 years.
Originally ranked after BUSD, DAI experienced a significant drop in market value after the USDC unpegging incident, but later experienced a resurgence due to a strategy of exchanging a large portion of its reserve asset USDC for U.S. bonds. Its market value has risen by over 20% in the past two months, and it has risen to become the third largest stablecoin.
As for the long-standing top stablecoin USDT, despite being criticized for its lack of asset transparency, it has benefited from the issues with BUSD and USDC and has seen a continuous increase in market value. Compared to the beginning of the year, its market value has increased by 25.7% to $83 billion.
Meanwhile, the fifth largest stablecoin, TUSD (TrueUSD), has quietly and rapidly risen under the disputes among the top four stablecoins. Since March, its market value has more than doubled to approximately $3 billion, making it one of the fastest-growing stablecoins.
Data provider Kaiko's data shows that TUSD's share of stablecoin trading volume on centralized cryptocurrency exchanges has risen from less than 1% at the beginning of the year to 20%.
The rapid rise of the relatively unknown TUSD has also sparked many speculations. A recent article by The Wall Street Journal titled "Cryptocurrency Cloud: Who is Controlling the Rapid Growth of Stablecoin TrueUSD?" raised questions about the mastermind behind TrueUSD. The article mentioned that TrueUSD was created in 2018, but was later renamed Archblock and received funding from Peter Thiel's Founders Fund, StartX under Stanford University, Andreessen Horowitz, and Jump Trading.
Currently, the co-founder of TrueUSD is embroiled in a fierce legal dispute over An's departure from the company. In a recent lawsuit, An stated that Justin Sun had discussed acquiring TrueUSD in 2020, but before the deal was finalized, An, as the CEO, was ousted from the parent company of the stablecoin. His statements have fueled market speculation that Justin Sun is the mastermind behind the sudden growth of TrueUSD. In July, cryptocurrency investment firm Cinneamhain Ventures partner revealed that TUSD is related to Huobi, Justin Sun's family, and partners.
Another rapidly growing stablecoin outside of TUSD is FDUSD from First Digital Labs, which saw a 1410% increase in market value in August after being listed on Binance, reaching $305 million. It currently ranks 11th in stablecoin market value, just behind Frax. DFDUSD is issued by FD121 Limited, a subsidiary of First Digital Limited, headquartered in Hong Kong. In June, Zhao Changpeng announced that First Digital would issue stablecoins on the BNB Smart Chain.
We can see that among the top five stablecoins, DAI has achieved a "comeback" by exchanging its stablecoin reserve assets for U.S. bonds and other RWA assets to generate returns, and then distributing some of the returns to users. Similarly, this year, in order to gain more market share and launch yield stablecoins, old blue-chip DeFi projects such as Curve and Aave, as well as new DeFi projects like Lybra Finance and OpenEden, are more or less leveraging LSD, RWA, and other yield assets to drive the development of their yield stablecoins.
In May of this year, Curve's native stablecoin crvUSD was officially launched. Currently, crvUSD supports ETH and liquidity staking products such as wbtc, wsteth, and sfrxETH as collateral, and excess collateral is used to mint crvUSD. Data from the Curve website shows that the minting of Curve's native stablecoin crvUSD has exceeded 120 million tokens. Aave followed suit and launched its native stablecoin GHO in July. Similar to DAI, GHO uses Aave's aTokens as collateral assets for minting, and the difference is that aTokens are yield assets. Aave's minting volume has exceeded 20 million tokens.
Similar to Curve's native stablecoin crvUSD, other new forces in the LSD stablecoin protocol, such as Lybra Finance and Prisma Finance, also support the minting of yield stablecoins with LSD assets. Currently, Lybra Finance's stablecoin eUSD has a market value exceeding $180 million, ranking 15th among stablecoins. In addition, the on-chain U.S. bond protocol represented by OpenEden allows users to invest in U.S. bonds through its native stablecoin TBILL to earn annualized returns. Currently, OpenEden's TVL has exceeded $12 million.
In addition to the changes in the landscape of mainstream stablecoins, the competition for yield stablecoins has intensified. This lucrative business of stablecoins is also attracting Web2 payment giant PayPal, whose stablecoin PYUSD has already exceeded 30 million tokens in circulation. With the entry of PayPal, Circle CEO and other cryptocurrency insiders predict that more non-crypto practitioners will enter the stablecoin market.
Gradual Implementation of Regulatory Frameworks, Will Compliant Stablecoins Lead Cryptocurrency into the Mainstream?
Although the total market value of stablecoins has declined, the entry of Web2 giants like PayPal may force the implementation of compliant stablecoins. Currently, the regulatory frameworks for stablecoins in core cryptocurrency regions such as the United States, Singapore, and Hong Kong are gradually becoming clearer.
At the beginning of the year, the SEC's regulatory crackdown on BUSD temporarily shook confidence in the stablecoin market. The launch of PYUSD after a six-month hiatus is seen as accelerating the enactment of stablecoin legislation in the United States.
At the announcement of PayPal's launch of PYUSD, Patrick McHenry, Chairman of the House Financial Services Committee, expressed support, stating that "stablecoins issued under a clear regulatory framework are expected to become the cornerstone of our 21st-century payment system. PayPal's stablecoin makes it more important than ever to continue to push for legislation."
In late July, the House Financial Services Committee announced the passage of the "Payment Stablecoin Transparency Act (draft)," which establishes a regulatory path for approving and regulating stablecoin issuers, while creating uniform federal minimum standards for payment stablecoins.
In addition to the United States, the Monetary Authority of Singapore has taken the lead in issuing the "MAS Finalized Stablecoin Regulatory Framework." This regulatory framework defines the scope of regulation and key requirements for reserve assets, information disclosure, and other dimensions that issuers need to meet before issuing stablecoins.
Regarding stablecoin regulation in Hong Kong, in July, Hong Kong Financial Secretary Paul Chan revealed in a public interview that the Hong Kong Monetary Authority is formulating a regulatory framework for stablecoins and plans to conduct a second round of public consultation within the year, with the aim of implementing the regulatory arrangements in 2023/2024.
Many cryptocurrency insiders believe that as regulation gradually takes shape, compliant stablecoins may be one of the keys to integrating cryptocurrency applications into the mainstream economy.
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