Tether’s dominance prevails: US-based stablecoins face turbulence in 2023

In the ever-evolving world of cryptocurrencies, 2023 has proven to be a year of profound transformation and challenges for the stablecoin ecosystem. The sector has grappled with significant disruptions, including the collapse of major players such as FTX, Alameda Research, BlockFi, Voyager, Celsius, Babel Finance, and Three Arrows Capital. 

Legal actions against prominent figures, including Sam Bankman-Fried, Alex Mashinsky, Do Kwon, Changpeng Zhao, and Binance, have sent shockwaves through the industry.

Tether: Dominance amidst criticisms

Tether, the leading stablecoin, solidified its dominant position in the stablecoin landscape in 2023. Despite enduring years of criticism related to its management and reserves, Tether has continued its remarkable growth. 

Its market capitalization surged by over $24 billion, representing a remarkable increase of more than 35%.

One pivotal factor contributing to Tether’s success in 2023 has been its ability to leverage the higher interest rate environment to bolster its claimed financial position. 

The firm’s excess reserves, which stood at approximately $1 billion at the end of the previous year, swelled to approximately $3 billion in its latest assurance.

This substantial increase in assets has empowered Tether to diversify its investments across various industries. While Tether has previously attracted scrutiny from law enforcement and regulators, the company has made strides in improving its relationship with these entities. 

Notably, in 2023, Tether onboarded the Secret Service and the Federal Bureau of Investigation, granting these agencies greater insights into its operations.

Circle: A challenging year for USDC

Circle’s stablecoin, USDC, faced a considerably more challenging year than its Tether counterpart. The market capitalization of USDC witnessed a substantial contraction, plummeting from around $44 billion to $25 billion, marking a nearly 45% decrease.

Several factors contributed to this decline, with a significant focus on the de-peg of USDC following the failure of Silicon Valley Bank. As Circle encountered difficulties with access to its banking partners, a substantial portion of its reserves was held at Silicon Valley Bank, making it vulnerable to the bank’s failure.

In contrast to Tether, Circle did not experience a substantial increase in excess reserves. At the end of the previous year, the company held around $140 million in reserves, which dwindled to approximately $50 million in its most recent attestation.

Circle’s leadership responded to this shrinking market position by openly criticizing its competitors accusing Tether of “counterfeiting” the US dollar.

A year of turmoil and regulatory scrutiny

Binance USD (BUSD), the stablecoin introduced in collaboration with Paxos under the Binance brand, faced a tumultuous year in 2023, largely due to regulatory hurdles. In February, the New York Department of Financial Services intervened, effectively preventing Paxos from issuing new BUSD tokens. 

The root of this issue lay in the mismanagement of Binance Peg BUSD, where Binance failed to appropriately segregate the BUSD backing BUSD on Binance chains, raising concerns about inadequate reserves.