The Reshaping of the Stablecoin Landscape: USDC Rises in the DeFi Market

In 2021, the stablecoin market presented a new landscape. Although USDT still dominates the exchanges, USDC has emerged in the DeFi sector, with various indicators showing it is more favored by DeFi users. At the same time, stablecoins are no longer just tools for crypto users to avoid risk, but have also become an important compliance channel for traditional finance to enter the crypto and DeFi markets.

Stablecoins have always been the focal point of the crypto market, playing a key role in the decentralized cryptocurrency space with a relatively centralized mechanism, especially in trading and transfer scenarios on centralized exchanges, helping users reduce asset volatility risks and lock in profits.

In January of this year, the U.S. Treasury's Office of the Comptroller of the Currency allowed U.S. banks to use USD stablecoins for payments and settlements, marking a recognition of the status of stablecoins by regulators. Amid a strong cryptocurrency market in 2021, the demand for stablecoins as a primary settlement asset surged, with the total market capitalization skyrocketing from $28 billion at the beginning of the year to $108.1 billion.

Despite the market's anticipation for a new stablecoin to replace USDT's leading position, USDT still dominates centralized exchanges due to user habits. In May this year, the issuer of USDT first disclosed the reserve situation in detail, showing that nearly 76% of its reserves are in cash or cash equivalents.

However, the position of USDT in the overall cryptocurrency market has changed. Currently, the total issuance of USDT is $64.3 billion, accounting for about 58% of the stablecoin market, which is a decrease from 75% at the beginning of the year, mainly due to the explosive growth of the DeFi market.

In the DeFi market, for compliance and security reasons, most projects prefer to use ETH and USDC to establish trading pair liquidity pools. USDC has become the preferred stablecoin for DeFi users and projects. Data shows that on major DeFi platforms like Uniswap and Aave, the locked amount, trading volume, and lending volume of USDC far exceed that of USDT.

USDC is striving to become the main gateway for traditional finance to enter the cryptocurrency and Decentralized Finance markets. Its issuers, Circle and Coinbase, are among the most compliant companies in the industry. In March of this year, Visa announced it would allow transactions to be settled using USDC. In May, Circle secured $440 million in funding, setting a record in the industry.

In June, Circle, Compound, and Coinbase successively launched USDC savings yield products with an annual yield rate of about 4%. These products significantly lower the threshold for traditional users to enter the Decentralized Finance market, and are expected to attract a large influx of traditional financial capital.

Driven by the dual demand of DeFi and traditional finance, the supply of USDC surged from $1.3 billion at the beginning of the year to $25.1 billion. In the future, USDC will also be issued on multiple blockchain networks, further expanding its advantage in the on-chain DeFi market.

Currently, the stablecoin landscape in the crypto market is becoming increasingly clear. USDT and USDC are the dual cores driving market development, with USDT mainly serving centralized exchange scenarios, while USDC is dedicated to connecting traditional finance with the crypto world. Other stablecoins like DAI and BUSD each have specific application scenarios and positioning.

As the cryptocurrency market matures, the role of stablecoins becomes increasingly important. USDC has become a benchmark in this field and drives industry development, similar to Coinbase's position in the exchange market; although it is not the highest in trading volume, it has become the most influential participant due to its compliance.