United States-based cryptocurrency exchange Coinbase has asked its customers to convert their Tether-issued USDT (USDT) stablecoin to USD Coin (USDC), a USD-pegged stablecoin issued by Circle and co-founded by Coinbase in 2018.
The cryptocurrency exchange suggested that USDC is a much more secure alternative in the wake of the FTX collapse saga and has also exempted any fee on the conversion of USDT to USDC on its platform. The firm said:
“We believe that USD Coin (USDC) is a trusted and reputable stablecoin, so we’re making it more frictionless to switch: starting today, we’re waiving fees for global retail customers to convert USDT to USDC.”
Stablecoins started out as an onboarding tool for the crypto exchanges in the early days of crypto, but today they have become a key market player and liquidity source. However, there has always been some form of scrutiny around their reserves backing these stablecoins. A stablecoin, by definition, must be backed by 1 USD or equivalent.
The reserve debate intensified in the aftermath of FTX collapse as many firms with exposure to the tainted exchange and its sister company Alameda Research went bankrupt. There was another allegation about Binance CEO Changepeng Zhao trading barbs with former FTX CEO Sam Bankman-Fried and accusing him of trying to depeg USDT.
Tether published its latest quarterly attestation on Nov. 10, just a day before the exchange filed for bankruptcy. The report noted that 82% of Tether’s reserves are held in cash, cash equivalents and other short-term deposits as of Sept. 30, 2022.
Coinbase also stressed that USDC is 100% backed by “cash and short-dated U.S. treasuries held in U.S. regulated financial institutions,” and it is always redeemable 1:1 for U.S. dollars.
In a statement sent to Cointelegraph, a Tether spokesperson classified Coinbase's initiative as inappropriate and desperate:
“This wildly inappropriate ‘offering’ from Coinbase demonstrates the desperation of USDC during a time in which its market cap has suffered immensely, with a loss of USD12B in three months. This isn’t an honest competitive rivalry. This is a sad and desperate attempt from a company that is clearly suffering. The general conclusion on Twitter in response to their announcement, is that this is a move borne out of desperation. As for Tether, we believe lower fees are always better for the customer.”
Apart from the debate over reserve audits, there is a growing “stablecoin war” among crypto exchanges as well. Coinbase’s request to convert USDT to USDC comes just a couple of months after Binance, another global player, cut support for USDC, leading to a drop of $3 billion in the market cap of the Coinbase co-founded stablecoin.
Tether-issued USDT is the largest stablecoin by market share with a market cap of $65 billion. USDC currently sits at a $42 billion market capitalization but has rapidly eaten into USDT’s market share. Binance’s stablecoin, BUSD, currently has a market cap of $22 billion.
This article was updated on Dec. 10 to include a statement from the Tether.