The world of stablecoins is suddenly looking shaky.
Seismic shifts may be afoot in the $137 billion market after
New York-based Paxos Trust Company, which mints Binance's stablecoin, said it
would cease issuing new BUSD tokens after US regulators labeled the asset an
unregistered security.
The US move has left investors questioning the future shape
of the market for stablecoins, tokens that are usually backed by traditional
assets like dollars and US Treasuries to tame the wild swings that characterize
cryptocurrencies.
The immediate impact hasn't been negative for the stablecoin
market as a whole, though; it's actually seen its total value grow by $2
billion since the Paxos announcement on February 13.
"There's way too much demand for dollar-based stablecoins
for them to go away," said Alex Miller, CEO at bitcoin developer network
Hiro.
Instead rivals are vying to cash in on the woes of BUSD, the
world's third-biggest stablecoin, whose market value has shrunk to $12.9
billion from $16.1 billion, with its market share narrowing to 9.4 percent from
12.1 percent, according to CoinGecko.com.
Market leader tether (USDT) has been a big beneficiary,
adding $1.9 billion to its market capitalization to hit $70.3 billion since the
news. It now commands 52.6 percent of the stablecoin market, up from just over
51 percent.
Circle's USD Coin, the second-biggest stablecoin, edged up
over $700 million to $42 billion, lifting its market share to 31.3 percent from
30.9 percent.
And the winner is.. Tether
Stablecoins are a key part of the cryptosphere, with their
steadier value meaning they're used as to facilitate transfers between
cryptocurrencies or into regular cash. Traders also use these tokens to hedge
their positions, and hence dwindling 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 slump in BUSD had caused
a big shift in the stablecoin market.
"And tether wins."
Broader crypto market impact also seems to have been
contained with bitcoin rising 14% over the past week to $24,902, shrugging off
worries that central banks will keep raising rates.
Among the reasons for the sanguine reaction is that BUSD is
largely used to trade on Binance, the world's largest crypto trading platform,
while its usage is limited in other parts of the crypto world, according to
analytics firm Kaiko.
"While BUSD is used in DeFi, it is not systemically
important to the ecosystem," Kaiko's Riyad Carey said.
Betting on future prices
The developments around Binance's stablecoin have also
boosted trading on competing platforms; since February 1, Binance's bitcoin
liquidity is down almost 30 percent while US-based Coinbase's is up nearly 15
percent, according to Kaiko.
Daily open interest for bitcoin to BUSD perpetual swaps has
dropped from over 17,000 bitcoin at the beginning of February to 13,726
bitcoin, Binance data showed, pointing to traders withdrawing bets on future
prices for BUSD.
While some uncertainty remains on the impact of the US
Securities and Exchange Commission ruling on other stablecoins, the market
appears to have adjusted, according to some crypto players.
"This is unlikely to represent a critical large
structural change to the market, for now," said Vetle Lunde, analyst at
Arcane Research. He added: "Enforcement against USDC or the non-US
domiciled USDT, could have more dramatic implications." © Reuters
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