USDC Loses All its Post-Terra Gains Since Binance Auto-Conversion Announcement

Circle’s USDC stablecoin hit a market capitalization of over $55 billion in May and June this year. The coin has now lost all the ground it gained and has a market cap of nearly $45 billion at the time of writing. The market cap is the lowest since January.

Recently, the USDC suffered a blow from Binance’s efforts to enhance liquidity and capital efficiency on its exchange. At the beginning of September, The most popular crypto exchange announced plans to automatically convert the competing stablecoins balances like USDC, TrueUSD, and Pax Dollar to Binance USD.

At the time of the announcement, Jeremy Allaire, the Circle’s CEO, was optimistic that the change could cause more USDC to flow into the Binance exchange. But today, it is hard to tell if that is true. Since the announcement, the USDC market cap has lost 12%, while Binance USD has gained 12%, as per CoinGecko.

How USDC Gained Popularity When Terra’s UST Crashed

In May, when Terra’s UST stablecoin lost its dollar peg and eventually wiped out over $40 billion, many investors appeared to flock to Circle’s USDC as a safe harbor, which led to the stablecoin experiencing a surge. At the time, the USDC market cap shot up from $47 billion to over $55 billion, as per CoinGecko data.

That rise occurred at the time when Tether’s USDT, USDC’S biggest rival, briefly lost its dollar peg. According to CoinGecko, the incident caused USDT to drop from a market cap of $82 billion to $67 billion in May 2022. However, in early June, Tether handled the setback effectively and processed over $6 billion in redemptions.

The market caps of Stablecoins that retain their 1:1  peg with an underlying currency like USD roughly mirror their circulating supply. That is because many centralized issuers like Tether and Circle create new tokens when users buy them, take them out of circulation, or burn them when they are redeemed.

USDT Leads Over USDC in Market Capitalization

At some point, it appeared that USDC would overtake USDT to become the largest stablecoin by market cap. But the gap between the stablecoins has increased massively from $9.5 billion in July to $22billion. However, Tether is yet to regain its all-time high despite having multiple redemptions worth billions from the beginning of June.