USDC Market Cap Drops by $10 Billion as Investors Shift to Tether (USDT)

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Stablecoins have long served as the backbone of the cryptocurrency ecosystem, offering traders and investors a haven from the extreme volatility associated with digital assets like Bitcoin and Ethereum. Since 2020, stablecoin adoption surged dramatically, driven by rising demand for reliable on-chain value transfer and yield-generating opportunities in decentralized finance (DeFi). However, confidence in these dollar-pegged tokens has faced repeated challenges — most notably after the 2022 UST collapse and, more recently, the Silicon Valley Bank (SVB) crisis that shook USDC’s stability.

Now, market data reveals a significant shift: USDC has lost approximately $10 billion in market capitalization, while Tether (USDT) has emerged as the primary beneficiary, capturing investor trust and pushing its market share to a 22-month high.

The Anatomy of Stablecoin Confidence

Stablecoins are digital currencies designed to maintain a consistent value by being pegged to reserve assets such as fiat currencies (e.g., the U.S. dollar), commodities like gold, or even other cryptocurrencies. They fall into three main categories:

As of March 2023, there were roughly 138 active stablecoins globally, with a combined market cap of around $130 billion, according to CoinMarketCap. The top three — USDT, USDC, and BUSD — are all fiat-backed and collectively accounted for about 90% of total stablecoin market value.

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USDC’s $10 Billion Setback

On March 10, 2023, the collapse of Silicon Valley Bank sent shockwaves through both traditional finance and crypto markets. At the heart of the storm was Circle, the issuer of USD Coin (USDC), which disclosed that $3.3 billion — or about 7% of USDC’s total reserves — was held at SVB.

This revelation triggered immediate panic among users. Within hours, USDC’s price decoupled from its $1.00 peg, plummeting to as low as **$0.87** on March 11. While the U.S. government stepped in to guarantee deposits and restore confidence, the damage to USDC’s reputation had already been done.

Despite Circle’s assurance of full redemption without delays — backed by BlackRock-managed U.S. Treasury bills and cash reserves — many investors chose to exit anyway. According to The Block, even with seamless withdrawals available, a wave of redemptions swept through the network, reflecting weakened trust in USDC’s resilience during systemic banking stress.

Steven Zheng, Research Head at The Block, noted:

“Early March’s events damaged crypto investors’ long-term confidence in stablecoin sustainability — even when issuers deliver on their promises.”

Data from CoinGecko shows USDC’s market cap dropped from around $43 billion at the start of March to just $32.5 billion, marking a nearly $10.5 billion decline** in just two weeks. As of now, USDC remains the second-largest stablecoin by market cap at approximately **$33 billion.

Circle responded swiftly, transferring “nearly all” of its remaining cash reserves to BNY Mellon, one of the world’s largest custodial banks, leaving only “limited funds” with other financial partners.

USDT Gains Ground Amid Market Turmoil

While USDC struggled, Tether (USDT) experienced a surge in demand. Long criticized for its historical lack of transparency and reserve composition concerns, USDT has gradually improved its reporting practices — publishing regular attestation reports and diversifying its holdings beyond commercial paper into U.S. Treasuries.

These efforts appear to have paid off. From March 10 onward, USDT’s market cap ballooned by roughly $8 billion**, climbing from $715 billion to $795 billion, according to CryptoCompare’s March report. Its market share soared to 60%**, the highest level since May 2021.

This growth reflects a broader trend: in times of uncertainty, traders often retreat to the most liquid and widely accepted instruments — and USDT dominates trading volume across major exchanges, including OKX, Bybit, and Binance.

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Why Are Investors Choosing USDT?

Several factors explain USDT’s resilience:

Ripple Effects Across the Stablecoin Landscape

The decline of USDC wasn’t the only shift in the stablecoin hierarchy. The third-largest player, Binance USD (BUSD), also faced regulatory pressure when New York regulators ordered Paxos to halt BUSD minting in February 2023. The move caused BUSD’s supply to halve — dropping from $16 billion to under $8 billion — creating space for competitors.

One clear winner beyond USDT was TrueUSD (TUSD), which saw its market cap double from under $1 billion to over $2 billion, rising to become the fifth-largest stablecoin. Other alternatives like DAI and FRAX also gained traction among DeFi users seeking decentralized options.

Frequently Asked Questions (FAQ)

Q: Why did USDC lose its peg in March 2023?
A: The depegging was triggered by the collapse of Silicon Valley Bank, where $3.3 billion of USDC’s reserves were held. Although the U.S. government guaranteed deposits, panic selling caused temporary price instability.

Q: Is USDT safe despite past transparency concerns?
A: Tether has significantly improved its reserve disclosures since 2021, shifting toward safer assets like U.S. Treasuries and undergoing regular attestations. While not audited in the traditional sense, its transparency has increased notably.

Q: How much of the stablecoin market does USDT control now?
A: As of March 2023, USDT holds approximately 60% of the total stablecoin market share — the highest level in over two years.

Q: Can stablecoins be trusted after UST and USDC incidents?
A: Trust depends on transparency and collateral quality. Fiat-backed stablecoins with strong reserve management — especially those using short-term Treasuries — are currently viewed as more reliable.

Q: What happened to BUSD?
A: Regulators in New York ordered Paxos to stop issuing new BUSD tokens due to compliance concerns. This led to a rapid reduction in supply and usage on major platforms.

Q: Where can I trade or use USDT securely?
A: Major regulated exchanges like OKX support USDT trading with high liquidity and security protocols. Always verify platform legitimacy before depositing funds.

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Conclusion

The past few months have underscored a critical truth: perceived safety matters more than technical design in times of crisis. Despite Circle’s operational response to the SVB fallout, investor sentiment shifted decisively toward USDT — a testament to network effects, liquidity dominance, and evolving trust.

As regulatory scrutiny intensifies and users demand greater transparency, the stablecoin landscape will continue evolving. For now, Tether stands stronger than ever — while USDC faces an uphill battle to reclaim lost ground.