Cryptoverse: Tether tightens grip on the wobbling world of stablecoins

21 February (Reuters) – The world of stablecoins is suddenly looking shaky.

Seismic shifts may be taking place in the $137 billion market after New York-based Paxos Trust Company, which coins Binance’s stablecoin, said it would stop issuing new BUSD tokens after US regulators declassified the asset as a non-profit. registered effect.

The US move has left investors questioning the future shape of the market for stablecoins, tokens typically backed by traditional assets such as dollars and US government bonds to tame the wild swings that characterize cryptocurrencies.

However, the immediate impact was not negative for the stablecoin market as a whole; it has actually seen its total value grow by $2 billion since the Paxos announcement on Feb. 13.

“There is far too much demand for dollar-based stablecoins for them to disappear,” said Alex Miller, CEO of bitcoin developer network Hiro.

Instead, rivals are vying for the woes of BUSD, the world’s third-largest stablecoin, whose market capitalization has shrunk from $16.1 billion to $12.9 billion, and market share has fallen from 12.1% to 9 .4%, according to CoinGecko.com.

Market leader Tether (USDT) has been a big beneficiary, adding $1.9 billion to its market cap to $70.3 billion since the news. It now controls 52.6% of the stablecoin market, up from just over 51%.

Circle’s USD Coin, the second largest stablecoin, rose by more than $700 million to $42 billion, increasing its market share from 30.9% to 31.3%.

AND THE WINNER IS.. TETHER

Stablecoins are an important part of the cryptosphere, with their more stable value meaning they are used to facilitate transfers between cryptocurrencies or into common money. Traders also use these tokens to hedge their positions, which is why falling market value is associated with falling liquidity and leverage in the broader crypto market.

Markus Thielen, head of research and strategy at crypto firm Matrixport, said the Paxos announcement and subsequent BUSD slump had triggered a major shift in the stablecoin market.

“And chain wins.”

The broader impact on the crypto market also appears to be under control as bitcoin is up 14% over the past week to $24,902, allaying concerns that central banks will continue to raise rates.

One of the reasons for the optimistic response is that BUSD is largely used to trade on Binance, the world’s largest crypto trading platform, while its use is limited in other parts of the crypto world, according to analytics firm Kaiko.

“Although BUSD is used in DeFi, it is not systemically important to the ecosystem,” said Riyad Carey of Kaiko.

LASTS ON FUTURE PRICES

Developments around Binance’s stablecoin have also boosted trading on competing platforms; since Feb. 1, Binance’s bitcoin liquidity is down nearly 30%, while US-based Coinbase (COIN.O) is up nearly 15%, according to Kaiko.

Daily open interest for bitcoin to BUSD perpetual swaps has fallen from more than 17,000 bitcoin in early February to 13,726 bitcoin, Binance data showed, indicating traders were withdrawing bets on future prices for BUSD.

While some uncertainty remains about the impact of the U.S. Securities and Exchange Commission ruling on other stablecoins, the market appears to have adjusted, according to some crypto players.

“For now, this is unlikely to represent a critical major structural change in the market,” said Vetle Lunde, an analyst at Arcane Research. He added, “Enforcement against USDC or the non-US domiciled USDT may have more dramatic implications.”

Reporting by Medha Singh and Lisa Pauline Mattackal in Bengaluru; Edited by Tom Wilson and Pravin Char

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