(Bloomberg) – The competitive landscape for some of crypto’s most traded tokens is changing, following a decision by digital asset exchange Binance to prioritize its own product and market. appeal of rising interest rates in traditional finance.
Stablecoins — digital tokens that aim to hold individual value with a less volatile asset like the dollar — are typically used by traders as a safe haven from wild price swings in crypto markets. They are also a popular tool for trading on multiple sites or exchanges, and especially on decentralized sites, can sometimes net investors a net return.
A long-established status quo between the market’s three major stablecoins by market value was shaken by Binance last month, when the world’s largest exchange announced that it would automatically convert all USDC deposits from Circle. – the second largest of the group – in its own, the third largest stablecoin BUSD.
The transition, which seemed to be in the works for several months before officially changing for users on September 29, upended months of growth for USDC. Its value has shrunk more than 12% since early September to less than $50 billion, according to data from CoinGecko, while Binance’s BUSD has steadily increased over the same period. Meanwhile, growth in Tether’s USDT, the largest of all stablecoins at $68 billion, has leveled off after losing about a fifth of its overall circulation in May, when it stalled. briefly detached during the collapse of the Terra ecosystem.
“Tether still has a very strong position in the market,” said Clara Medalie, head of research at blockchain data firm Kaiko. “Not all exchanges list BUSD and most traders will likely have accounts on multiple exchanges, so they will favor a stablecoin that is easiest to work with.”
The announcement of Binance’s auto-conversion policy has raised anti-competition concerns, as users may be less likely to convert their BUSD back to USDC when withdrawing from Binance if the stablecoins are deemed to have a equal monetary value. Binance CEO Changpeng Zhao said the change is aimed at increasing liquidity on the platform, which in turn could make BUSD more useful to traders.
- Read more: Binance’s Stablecoin move could be a land grab: Bloomberg Crypto
But beyond forced conversions, Binance is willingly looking for other ways to make BUSD more attractive to users. It temporarily waived trading fees between BUSD and Ether in August ahead of a major upgrade to the Ethereum network, anticipating that investors would buy the latter to benefit from staking rewards. Kaiko’s data showed that the share of the ETH-BUSD trading pair against Ether and USDT jumped 73% immediately after initiating fee-free trading, although it lost most of those gains once. once charges have resumed after the upgrade.
For USDC, trading volumes of its Bitcoin pair on centralized exchanges show another view of the token’s gradual decline. Medalie said Binance’s delisting of USDC caused a global drop in volumes, demonstrating that even though it’s just one exchange out of hundreds, “Binance as a whole was very important to the world. ‘centralized market activity for the USDC’.
But if the strategy was to shift volumes from USDC directly to BUSD, the plan might not work as well as hoped. Most of the lost trading volume for USDC has since shifted to Tether-denominated trading pairs, Medalie said, potentially due to far fewer exchanges offering BUSD.
Historically the most popular token on decentralized exchanges, USDC could also be rocked by turbulence in broader global markets. Yields on decentralized finance protocols are lower due to a general decline in activity, making USDC less attractive compared to rising interest rates on traditional products like U.S. Treasury bills. three months.
“Earning interest on deposits in DeFi protocols is not as profitable anymore,” Medalie added. “On a macro level, DeFi isn’t as attractive as it once was when you can earn a lot more just by holding dollars.”
Not content to be limited to the realm of crypto trading, stablecoin issuers are also keen to show that their tokens and blockchain technology can be useful in traditional finance as a means of faster and cheaper payments.
Trading app Robinhood listed USDC on its platform at the end of September, a move that primarily allowed users to store wealth earned from crypto betting without paying a premium to convert it back into fiat currency. . The partnership was also a win for Circle’s payment ambitions, with USDC now the base trading pair for Robinhood’s crypto wallet project and to be used as a settlement asset for Robinhood products.
But as this vision moves closer to reality, central bankers and regulators have warned of the multiple risks that stablecoin payments could pose to global financial stability.
Researchers at the Federal Reserve Bank of New York said the shift in flows from Tether to USDC after Terra’s collapse was of particular concern. In an article on crypto stability last month, they said that the fact that certain stablecoins like USDC are considered more resilient in times of crisis “may amplify the risks of running” from those who are more fragile. , where issuers would still be forced to quickly sell the real-world reserves that back them to meet customer redemptions.
Rich Teo, co-founder of Paxos which issues BUSD alongside Binance, said after Terra, a lack of regulation for stablecoins was an additional factor in recent shifting tides around the top three. The Paxos USDP token is also among those automatically converted by Binance.
Teo pointed to guidance from some US regulatory agencies issued this summer, which he said “suggests that a private company should not provide banking services such as yield, nor should it issue stablecoins on an unregulated basis.This could have affected sentiment somewhat.
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