The move by Paxos to stop minting new BUSD tokens forced capital to run to rival stablecoins such as Tether’s USDT, which raised $1 billion within hours of the SEC’s crackdown on the crypto-regulated blockchain platform. This has sparked a Stablecoin War with new casualties, and the market share of Tether Holdings Ltd’s USDT has been the biggest beneficiary so far.
According to Bloomberg, trading businesses are abandoning stablecoins USD Coin (USDCD), issued by Circle, and BUSD, issued by Paxos, in favour of Tether’s USDT, which is more appealing due to the token being based outside U.S. jurisdiction. The stablecoin leader’s market value jumped from $68.5 billion to a new high of $69.5 billion, according to statistics from CoinMarketCap.
The SEC’s Chairman Gary Gensler proposed new criteria for crypto exchanges to obtain further regulatory permission, which has further pushed capital into Tether’s USDT. Data from DeFi Llama demonstrates that Tether’s USDT dominance has increased to 51.23% of the overall market capitalization of the cryptocurrency sector, which is currently $136.9 billion.
A recent tweet by Delphi Digital shows that despite the crypto bear market that dominated the sector in 2022, the whole stablecoin market value is only down -18%, while the total crypto market cap is down -55%. This indicates that investors are still willing to invest in stablecoins as a safe haven asset. Decentralised stablecoin assets such as FLX and LQTY have increased by 34% and 24%, respectively after Paxos ceased issuing BUSD. FLX and LQTY are both governance tokens released by Reflexer Finance (RAI) and Liquity Protocol (LUSD).
Binance has confessed that the BUSD peg was undercollateralized by more than $1 billion three times in 2020 and 2021, but the issue has since been resolved. 68% of the BUSD supply is on the Ethereum (ETH) blockchain, while 32% has been bridged to the BNB chain after the news. Since early 2023, BUSD liquidity has been gradually declining. Traders sell their BUSD tokens for other stablecoins in the pool of the Ethereum-based Curve protocol to capitalise on its volatility. The pool holds 81% of its reserves in BUSD after a surge to 86% in response to recent SEC news.
The bullish sentiment of Bitcoin continues to be strong, with Bitcoin trading over $24,000, gaining 8.4% in only 24 hours and returning to the positive area with a 3.5% jump over the last week. This is a clear indication that investors are still confident in the cryptocurrency market, and stablecoins are becoming more popular as a safe haven asset.
In conclusion, the Stablecoin War has seen Tether’s USDT become the biggest beneficiary, with its market value jumping from $68.5 billion to a new high of $69.5 billion. This is due to the token being based outside U.S. jurisdiction, which is more appealing to investors. Decentralised stablecoin assets such as FLX and LQTY have also increased in value, as traders shift their holdings to these assets. Bitcoin has also seen a bullish trend, with the cryptocurrency trading over $24,000 and returning to the positive area with a 3.5% jump over the last week. This is a clear indication that investors are still confident in the cryptocurrency market, and stablecoins are becoming more popular as a safe haven asset.
