Multiple factors are gradually breaking the duopoly of Tether and Circle.
Written by: Nic Carter
Translated by: Saoirse, Foresight News
Circle's equity valuation has reached $30.5 billion. Reports indicate that Tether's (the issuer of USDT) parent company is raising funds at a valuation of $500 billion. Currently, the total supply of these two major stablecoins has reached $245 billion, accounting for approximately 85% of the entire stablecoin market. Since the inception of the stablecoin industry, only Tether and Circle have consistently maintained a significant market share, while other competitors have struggled to keep up:
Dai peaked at a market cap of only $10 billion in early 2022;
The UST from the Terra ecosystem soared to $18 billion in May 2022, but its market share was only about 10%, and it was short-lived, ultimately collapsing;
The most ambitious challenger was BUSD issued by Binance, which peaked at a market cap of $23 billion at the end of 2022 (15% of the market), but was subsequently forced to shut down by the New York Department of Financial Services (NYDFS).
Relative supply share of stablecoins (Source: Artemis)
The lowest recorded market share of Tether and Circle that I could find was 77.71% in December 2021—at that time, the combined market share of Binance USD, DAI, FRAX, and PAX was relatively significant. (If we trace back to before Tether's inception, there was naturally no market share for it, but mainstream stablecoins like Bitshares and Nubits prior to Tether have not survived to this day.)
In March 2024, the market dominance of these two giants peaked at 91.6% of the total supply of stablecoins, but has since continued to decline. (Note: The market share here is calculated based on supply, as this metric is easier to quantify; if calculated based on trading volume, number of trading pairs, real-world payment scale, active address count, etc., their share would undoubtedly be higher.) As of now, the market share of the two giants has dropped from last year's peak to 86%, and I believe this trend will continue. The reasons behind this include: increased willingness of intermediaries to issue stablecoins independently, intensified "race to the bottom" competition for stablecoin yields, and new changes in the regulatory environment following the introduction of the GENIUS Act.
Intermediaries are increasingly issuing stablecoins independently
In the past few years, if one wanted to issue a "white-label stablecoin" (i.e., a stablecoin customized based on existing technological frameworks), it not only required bearing extremely high fixed costs but also had to rely on Paxos (a compliant fintech company). However, the situation has completely changed: the current options for issuing partners include Anchorage, Brale, M0, Agora, and Bridge under Stripe, among others. In our investment portfolio, some small startups in the seed stage have successfully launched their own stablecoins through Bridge—without needing to become industry giants, they can still enter the stablecoin issuance space.
Zach Abrams, co-founder of Bridge, explained the rationale for independently issuing stablecoins in an article about "open issuance":
For example, if you build a new type of bank using an existing stablecoin, you will face three major issues: a) you cannot fully capture yields to create high-quality savings accounts; b) the reserve asset portfolio cannot be customized, making it difficult to balance liquidity enhancement and yield growth; c) when withdrawing your own funds, you still have to pay a redemption fee of 10 basis points (0.1%)!
His points are very valid. If using Tether, it is almost impossible to obtain yields to pass back to customers (and current customers generally expect to receive some yield when depositing funds); if using USDC, while it may yield returns, you have to negotiate a revenue share with Circle, which will take a certain percentage. Additionally, using third-party stablecoins comes with many restrictions: you cannot independently decide on freezing/seizure policies, cannot choose the blockchain network for stablecoin deployment, and redemption fees may rise at any time.
I once believed that network effects would dominate the stablecoin industry, and ultimately only one or two mainstream stablecoins would remain. But my view has changed: cross-chain swap efficiency is increasingly improving, and swapping different stablecoins within the same blockchain is becoming more convenient. In the next year or two, many cryptocurrency intermediaries may display user deposits as generic "dollars" or "dollar tokens" (rather than explicitly labeling them as USDC or USDT), ensuring that users can exchange them for any stablecoin of their choice.
Currently, many fintech companies and new banks have adopted this model—they prioritize product experience over adhering to traditional cryptocurrency industry norms, thus displaying user balances directly as "dollars" while managing reserve assets in the backend.
For intermediaries (whether exchanges, fintech companies, wallet service providers, or DeFi protocols), there is a strong incentive to transfer user funds from mainstream stablecoins to their own stablecoins. The reason is simple: if a cryptocurrency exchange holds $500 million in USDT deposits, Tether can earn about $35 million annually from the "float" (i.e., idle funds) of this capital, while the exchange receives nothing. To convert this "idle capital" into a source of income, there are three paths:
Request the stablecoin issuer to share part of the yield (for example, Circle shares revenue with partners through reward programs, but to my knowledge, Tether does not allocate yields to intermediaries);
Collaborate with emerging stablecoins (such as USDG, AUSD, USDe issued by Ethena, etc.), which have built-in revenue-sharing mechanisms;
Independently issue stablecoins and internalize all yields.
Taking exchanges as an example, if they want to persuade users to abandon USDT in favor of their own stablecoin, the most direct strategy is to launch a "yield program"—for instance, paying users yields based on U.S. Treasury bill rates while retaining 50 basis points (0.5%) of profit. For fintech products serving non-cryptocurrency native users, there may not even be a need to launch a yield program: they can simply display user balances as generic dollars, automatically convert funds to their own stablecoin in the backend, and then convert to Tether or USDC as needed during withdrawals.
Currently, this trend is gradually becoming evident:
Fintech startups generally adopt the "generic dollar display + backend reserve management" model;
Exchanges actively reach revenue-sharing agreements with stablecoin issuers (for example, Ethena successfully promoted its USDe on multiple exchanges through this strategy);
Some exchanges have formed stablecoin alliances, such as the "Global Dollar Alliance," with members including Paxos, Robinhood, Kraken, Anchorage, etc.;
DeFi protocols are also exploring their own stablecoins, with Hyperliquid (a decentralized exchange) being a typical case: it selects stablecoin issuance partners through public bidding, with the clear goal of reducing reliance on USDC and obtaining reserve asset yields. Hyperliquid received bids from several institutions, including Native Markets, Paxos, and Frax, ultimately choosing Native Markets (a decision that is controversial). Currently, the USDC balance on Hyperliquid is about $5.5 billion, accounting for 7.8% of the total USDC supply—although the USDH issued by Hyperliquid cannot replace USDC in the short term, this public bidding process has damaged USDC's market image, and more DeFi protocols may follow suit in the future;
Wallet service providers have also joined the ranks of independent issuers, such as Phantom (a mainstream wallet in the Solana ecosystem) recently announcing the launch of Phantom Cash—a stablecoin issued by Bridge that includes yield features and debit card payment functionality. Although Phantom cannot force users to use this stablecoin, it can guide users to migrate through various incentives.
In summary, as the fixed costs of stablecoin issuance decrease and the revenue-sharing collaboration model becomes more widespread, intermediaries no longer need to cede float income to third-party stablecoin issuers. As long as they are large enough and have a good reputation to earn user trust in their white-label stablecoins, independent issuance becomes the optimal choice.
Intensified "race to the bottom" competition for stablecoin yields
If we observe the stablecoin supply chart excluding Tether and USDC, we will find that the market landscape for "other stablecoins" has changed significantly in recent months. In 2022, a number of short-lived popular stablecoins (such as Binance BUSD and Terra UST) emerged, but with the collapse of Terra and the outbreak of the credit crisis, the industry underwent a reshuffle, giving rise to a new batch of stablecoins from the "ruins."
Stablecoin supply excluding USDT and USDC (Source: RWA.xyz)
Currently, the total supply of non-Tether/Circle stablecoins has reached a historical high, and the issuers are more diversified. The mainstream emerging stablecoins in the market include:
Sky (an upgraded version of Dai launched by MakerDAO);
USDe issued by Ethena;
PYUSD issued by Paypal;
USD1 issued by World Liberty.
Additionally, emerging stablecoins such as USDY from Ondo, USDG issued by Paxos (as a member of the alliance), and AUSD from Agora are also worth noting. In the future, stablecoins issued by banks will also enter the market. Existing data already indicates a trend: compared to the last wave of stablecoin hype, the current market has a greater number of credible stablecoins, and the total supply exceeds that of the previous bull market—even though Tether and Circle still dominate market share and liquidity.
These new stablecoins share a common characteristic: they generally focus on "yield transmission." For example, Ethena's USDe obtains yields through cryptocurrency basis trading and passes part of the yield to users, with its supply currently soaring to $14.7 billion, making it the most successful emerging stablecoin this year. Furthermore, USDY from Ondo, SUSD from Maker, USDG from Paxos, and AUSD from Agora all included revenue-sharing mechanisms in their initial designs.
Some may question: "The GENIUS Act prohibits stablecoins from providing yields." To some extent, this statement is correct, but if we pay attention to the exaggerated statements from recent banking lobby groups, we will find that the issue is far from settled. In fact, the GENIUS Act does not prohibit third-party platforms or intermediaries from paying rewards to stablecoin holders—these rewards are funded by the yields that issuers pay to intermediaries. Mechanically, it is even impossible to close this "loophole" through policy text, nor should it be closed.
With the advancement and implementation of the GENIUS Act, I have noticed a trend: the stablecoin industry is shifting from "directly paying yields to holders" to "transmitting yields through intermediaries." For example, the partnership between Circle and Coinbase is a typical case—Circle pays yields to Coinbase, which then passes part of the yield to users holding USDC, and there are no signs of this model stopping. Almost all new stablecoins have built-in yield strategies, and this logic is easy to understand: to persuade users to abandon the highly liquid and market-recognized Tether in favor of a new stablecoin, it is necessary to provide sufficiently attractive reasons (yields being the core attraction).
I predicted this trend at the TOKEN2049 Global Cryptocurrency Summit in 2023. Although the introduction of the GENIUS Act has delayed the timeline, this trend is now clearly evident.
For the existing giants with lower flexibility (Tether and Circle), this "yield-oriented" competitive landscape is undoubtedly unfavorable: Tether offers no yields at all, while Circle only has revenue-sharing partnerships with a few institutions like Coinbase, and its relationships with other institutions are not clear. In the future, emerging startups may squeeze the market space of mainstream stablecoins through higher yield-sharing, forming a "race to the bottom" in yields (which is essentially a "competition for yield caps"). This pattern may benefit institutions with scale advantages—just as the ETF industry experienced a "race to zero fees," ultimately forming a duopoly between Vanguard and BlackRock. But the question is: if banks eventually enter the fray, can Tether and Circle still be winners in this competition?
Banks can now officially participate in stablecoin business
After the implementation of the GENIUS Act, the Federal Reserve and other major financial regulatory agencies adjusted relevant rules—now banks can issue stablecoins and conduct related businesses without applying for new licenses. However, according to the GENIUS Act, stablecoins issued by banks must comply with the following rules:
100% collateralized by high-quality liquid assets (HQLA);
Support 1:1 on-demand conversion to fiat currency;
Fulfill information disclosure and auditing obligations;
Accept supervision from relevant regulatory agencies.
At the same time, stablecoins issued by banks are not considered "deposits insured by federal deposit insurance," and banks cannot use the collateral assets of stablecoins for lending.
When banks ask me "whether they should issue stablecoins," my usual advice is "there's no need to bother"—they can simply integrate existing stablecoins into their core banking infrastructure without directly issuing them. However, even so, some banks or banking alliances may consider issuing stablecoins, and I believe we will see such cases in the coming years. The reasons are as follows:
Although stablecoins essentially belong to "narrow banking" (only accepting deposits and not engaging in lending), they can bring various revenue opportunities to banks, such as custody fees, transaction fees, redemption fees, API integration service fees, etc.;
If banks find that deposits are flowing out due to stablecoins (especially those that can provide yields through intermediaries), they may issue their own stablecoins to prevent this trend;
For banks, the cost of issuing stablecoins is not high: there is no need to hold regulatory capital for stablecoin holdings, and stablecoins are considered "full reserve, off-balance-sheet liabilities," with a lower capital intensity than ordinary deposits. Some banks may consider entering the "tokenized money market fund" space, especially in the context of Tether's continued profitability.
In extreme cases, if the stablecoin industry completely prohibits yield-sharing and all "loopholes" are closed, issuers will gain a "quasi-minting power"—for example, charging 4% on asset yields without paying any returns to users, which could be even more substantial than the net interest margin of "high-yield savings accounts." However, in reality, I believe that the yield "loophole" will not be closed, and the profit margins for issuers will gradually decline over time. Even so, for large banks, as long as they can convert some deposits into stablecoins, even retaining just 50-100 basis points (0.5%-1%) of profit can generate significant income—after all, large banks can have deposit scales reaching trillions of dollars.
In summary, I believe that banks will ultimately join the stablecoin industry as issuers. Earlier this year, The Wall Street Journal reported that JPMorgan Chase, Bank of America, Citibank, and Wells Fargo have begun preliminary discussions about forming a stablecoin alliance. For banks, the alliance model is undoubtedly the optimal choice—individual banks find it difficult to establish a distribution network sufficient to compete with Tether, while an alliance can integrate resources and enhance market competitiveness.
Conclusion
I once firmly believed that the stablecoin industry would ultimately only have one or two mainstream products, at most no more than six, and repeatedly emphasized that "network effects and liquidity are key." But now I am beginning to reflect: can stablecoins really benefit from network effects? Unlike businesses like Meta, X (formerly Twitter), and Uber that rely on user scale—the true "network" is constituted by the blockchain, not the stablecoins themselves. If users can seamlessly enter and exit stablecoins, and cross-chain swaps are convenient and low-cost, the importance of network effects will significantly diminish. When exit costs approach zero, users will not be forced to be tied to a particular stablecoin.
It is undeniable that mainstream stablecoins (especially Tether) still have a core advantage: their trading spreads (bid-ask spreads) with major currency pairs are extremely small across hundreds of exchanges, which is difficult to surpass. However, increasingly more service providers are beginning to implement exchanges between stablecoins and local fiat currencies using "wholesale foreign exchange rates" (i.e., inter-institutional trading rates)—as long as stablecoins have credibility, these service providers do not care which specific stablecoin is used. The GENIUS Act has played an important role in regulating the compliance of stablecoins, and the maturity of infrastructure benefits the entire industry, except for the existing giants (Tether and Circle).
Multiple factors are gradually breaking the duopoly of Tether and Circle: cross-chain swaps are becoming more convenient, intra-chain stablecoin swaps are nearly free, clearinghouses support cross-stablecoin/cross-blockchain transactions, and the GENIUS Act promotes the homogenization of U.S. stablecoins—these changes reduce the risks for infrastructure providers holding non-mainstream stablecoins, pushing stablecoins towards "interchangeability," which is of no benefit to the existing giants.
Now, the emergence of numerous white-label issuers has reduced the cost of stablecoin issuance; non-zero Treasury yields are incentivizing intermediaries to internalize float income, squeezing out Tether and Circle; fintech wallets and new banks are leading this trend, with exchanges and DeFi protocols following closely behind—every intermediary is eyeing user funds, thinking about how to convert them into their own income.
Although the GENIUS Act restricts stablecoins from directly providing yields, it has not completely closed off the path for yield transmission, providing competitive space for emerging stablecoins. If the yield "loophole" continues to exist, "race to the bottom" in yield-sharing will be inevitable, and if Tether and Circle are slow to react, their market positions may be weakened.
Additionally, we cannot ignore those "offshore giants"—financial institutions with balance sheets in the trillions of dollars. They are closely monitoring whether stablecoins will lead to deposit outflows and how to respond. The adjustments in the GENIUS Act and regulatory rules have opened the door for banks to enter. Once banks officially participate, the current total market value of stablecoins, approximately $300 billion, will seem insignificant. The stablecoin industry has only been around for 10 years, and the real competition is just beginning.
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