If you've been watching the numbers, you knew this day was coming for awhile now. 

About a month ago my colleague from our New York News Desk published an end-of-the-year report on the overall increased usage of stablecoins, which is when I learned things had begun rapidly accelerating towards the end of 2021.

Things were looking worse for USDT than expected...

"...upon closer inspection you'll notice that the current top stablecoin, USDT (Tether) is actually declining in popularity - beginning the year holding about 75% of the entire stablecoin market, and ending it closer to 50%."

While USDC's growth was actually a bit shocking...

"USDC didn't just hold on to it's rank as 2nd most popular - while the total ecosystem grew by about 4X compare to last year, USDC saw growth of nearly 10X - from a $4 billion marketcap to $41 billion!"

So with USDT ending 2021 with 'closer to 50%' of the stablecoin market, still a majority - it only took a couple weeks of continuing decline until we arrive here.

On the Ethereum a Blockchain Tether's $39.8 Billion Market Cap Not Enough To Hold #1 Spot, USDC's $40.1 Billion Takes Over...

Making USDC the most used stablecoin on the most used protocol (ether).  While USDT still has a larger cap when looking at totals across all chains, the stats show the same reversal is coming to every protocol.

Which actually makes this a truly historic day in crypto. 

USDT is the original stablecoin, going all the way back to 2014 where it first launched as 'Realcoin'. 

After a couple years where people generally assumed things were as they seem, we began to see what would grow in to a 'movement' starting on Twitter, made up of people that found it suspicious Tether wouldn't say what banks held the reserve funds needed to back up their 1:1 value with the US Dollar.

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Then Things Got Crazy... 

Tether and their supporters initially claimed they did have the funds, sitting in bank accounts around the world in order to spread the risk.

That alone isn't suspicious - remember this is 2017-2018, crypto is exploding but it's still the wild west on steroids.  This is the days when if you heard the word 'Bitcoin' come out of your TV is was likely a news report on how people buy illegal drugs and guns online. 

The general public having a major misconception of crypto made it a realistic concern that any government could suddenly freeze an account that's holding millions of dollars if learned the money was somehow connected to crypto. 

Even Binance CEO CZ came out to say he believes Tether's reasoning for the secrecy, saying;


Ironically, even though Tether had a legitimate reason to not publicly share where the funds are located (in my opinion), it would turn out they were also lying about how much they had.

The next couple years were basically chaos - in 2018 I reported on Tether being accused of faking a hack in order to explain $31 million in missing funds.

In 2019 the New York Attorney General began investigating Tether, also suspicious if they held enough reserve cash in banks to back the all of the crypto-coins in circulation. After recieving documents from Tether, but not what they asked for, the Attorney General said the results were inconclusive. 

That's when the CFTC took over, Tether eventually admitted they do not hold $1 USD for every 1 USDT - however they then claim some of the reserves is in other types of assets and investments, and the total value covers the coins minted.

If you don't find that comforting, neither did the US Government - Tether was ordered to pay a $41 million fine to the Commodity Futures Trading Commission in 2021. 

With All That In Mind - It's No Surprise The Crypto World Accepted USDC's Offer Of a Fresh Start for Stablecoins, Minted From An  An Always Open Platform...

Stablecoins - if you're like me, without much thought you went from not using them at all, to using them occasionally, to using them a LOT.  So while it's no surprise to hear their usage is at an all time high, I was surprised to find out just the last 1 year accounts for nearly a 400% increase.

That increase brought the total amount if stablecoins in the crypto ecosystem from just $29 billion to a whopping $150 billion.

Their growth is still in overdrive right now - 30 days ago that total was $135 billion, meaning  $15 billion more stablecoins were minted in just the last month.

The chart above (via TheBlock) shows steady growth in 2020 with a sudden spike upwards early 2021 - a trend that hasn't slowed down at all.

Major Shake-Ups Within The Stablecoin Ecosystem...

In order of popularity the main stablecoins are (USDT) Tether, USD Coin (USDC), DAI (DAI), USDP (USDP) and Binance USD (BUSD).

But upon closer inspection you'll notice that the current top stablecoin, USDT (Tether) is actually declining in popularity - beginning the year holding about 75% of the entire stablecoin market, and ending it closer to 50%.

USDC didn't just hold on to it's rank as 2nd most popular - while the total ecosystem grew by about 4X compare to last year, USDC saw growth of nearly 10X - from a $4 billion marketcap to $41 billion! 

Stablecoin of the top crypto exchange Binance, BUSD was the 2nd fastest growing and 3rd most popular - they saw growth from $1 billion to $14.

Why Should Traders Pay Attention To The Stablecoin Supply?

 

As expected, the President's Working Group on Financial Markets (PWG) has released its report on stablecoins. According to the report, which is available here and below, if stablecoins are properly regulated, they could emerge as a more efficient and "inclusive" payment option. Simultaneously, stablecoins and stablecoin-related activities “present a variety of risks.”

The FDIC and the Comptroller of the Currency collaborated with the PWG to create the report.

These risks, according to the PWG Stablecoin report, include market integrity and investor protection against fraud and misconduct in digital asset trading, including market manipulation, insider trading, and front running, as well as a lack of trading or price transparency.

Furthermore, stablecoins may raise illicit finance concerns and risks to financial integrity, such as anti-money laundering (AML) and counter-terrorism financing (CFT), as well as prudential concerns such as a run on stablecoin assets when questions about redemptions arise.

According to the PWG, digital asset regulations are the responsibility of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), and these two agencies "have broad enforcement, rulemaking, and oversight authorities that may address certain of these concerns." According to the report, stablecoins or parts of stablecoin arrangements may be securities, commodities, or derivatives depending on the structure.

The PWG requests that Congress pass legislation requiring "stablecoin issuers to be insured depository institutions, subject to appropriate supervision and regulation at both the depository institution and the holding company level."

According to the proposed legislation, "custodial wallet providers should be subject to appropriate federal oversight."

Congress should also give a stablecoin issuer's federal supervisor the authority to require any entity that performs activities critical to the operation of the stablecoin arrangement to meet appropriate risk-management standards.

In advance of any new regulations, the PWG states;

“[regulatory agencies are] committed to taking action to address risks falling within each agency’s jurisdiction, including efforts to ensure that stablecoins and related activity comply with existing legal obligations, as well as continued coordination and collaboration on issues of common interest.”

Treasury Secretary Janet L. Yellen issued a statement on the report:

“Stablecoins that are well-designed and subject to appropriate oversight have the potential to support beneficial payments options.  But the absence of appropriate oversight presents risks to users and the broader system. Current oversight is inconsistent and fragmented, with some stablecoins effectively falling outside the regulatory perimeter. Treasury and the agencies involved in this report look forward to working with Members of Congress from both parties on this issue.  While Congress considers action, regulators will continue to operate within their mandates to address the risks of these assets.”

While the legislative process can be slow, you can expect the CFTC and SEC to make independent statements while coordinating any activity. In the absence of legislation from Congress, the group may take additional action as outlined in the document.

The stablecoin market is currently valued at around $127 billion, with Tether (USDT) and Circle's dollar-based cryptocurrency USDC leading the way.