Cryptoverse: Tether amplifies access to the shaky world of stablecoins

By Medha Singh and Lisa Pauline Mattackal

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

The $137 billion market could see seismic shifts underway after New York-based Paxos Trust Company, which announced the stablecoin by Binance, has announced that it will stop issuing new BUSD tokens after US regulators classified the asset as an unregistered security.

The move in the US has led investors to question the future shape of the market for stablecoins, tokens typically backed by traditional assets like dollars and US Treasuries in an attempt to tame the wild swings cryptocurrencies characterize.

However, the immediate impact has not been negative for the stablecoin market as a whole; The total value has increased by $2 billion since Paxos announced on February 13.

“There is far too much demand for dollar-based stablecoins for them to go away,” said Alex Miller, CEO of the Bitcoindeveloper network Hiro.

Instead, rivals are vying to capitalize on the troubles of BUSD, the world’s third-largest stablecoin, whose market value has shrunk from $16.1 billion to $12.9 billion, according to CoinGecko.com, with its market share falling from 12.1% to 9.4%.

The market leader Tether (USDT) was a great beneficiary and has its market capitalization up $1.9 billion to $70.3 billion since the news. It now commands 52.6% of the stablecoin market, up from just over 51%.

Circle’s USD coin, the second-largest stablecoin, surged over $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 as their stable value means they are used to facilitate transfers between cryptocurrencies or into regular cash. Traders also use these tokens to hedge their positions, and as such, dwindling market value is associated with decreasing liquidity and leverage in the broader crypto market.

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

“And Tether wins.”

The broader impact on the crypto market also appears to have been contained, as Bitcoin is up 14% over the past week to $24,902, shattering fears that central banks will hike rates further.

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

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

Betting on Future Prizes

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

Daily open interest for bitcoin to BUSD perpetual swaps has fallen to 13,726 bitcoin from over 17,000 bitcoin in early February, Binance data showed, suggesting traders have withdrawn bets on future prices for BUSD.

While there is some uncertainty about the impact of the US Securities and Exchange Commission ruling on other stablecoins, some crypto players believe the market appears to have adjusted.

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

(Reporting by Medha Singh and Lisa Pauline Mattackal in Bengaluru; Editing by Tom Wilson and Pravin Char)