Coinbase, the popular cryptocurrency exchange from the United States (US), has asked its customers to exchange their Tether (USDT) for their own stablecoin: USD Coin (USDC). This stablecoin was created in 2018 and pegged to the US dollar ($).
USDC Safer Alternative According to Coinbase
According to Coinbase, USDC has become a much safer alternative since the collapse of FTX. To encourage the conversion of Tether to USD Coin, they have now temporarily removed the fee that is normally charged for this. Coinbase said the following:
We believe USD Coin (USDC) is a trusted and reputable stablecoin, so we’re making the transition easier: starting today, we’re waiving fees for global retail customers to convert Tether (USDT) to USDC.
Stablecoin Reserve Debate
Stablecoins initially started as a kind of onboarding tool for crypto exchanges in the early days of crypto. Today, however, they have become a major market player and source of liquidity. The idea behind a stablecoin is that they are backed 1 to 1 by the underlying fiat currency, with USDC that is the US dollar. Not every stablecoin seems to be actually covered 1 to 1.
A reserve debate arose over this, which certainly became popular after the collapse of FTX. Many companies that could be linked to FTX went bankrupt in a short time. There was another allegation that Binance CEO Changepeng Zhao (CZ) accused former FTX CEO Sam Bankman-Fried of untying USDT.
Reserves of Tether
Tether recently had another quarterly test carried out, which should indicate how much % they actually have cash coverage. It showed that as of September 30, 2022, Tether was 82% backed in cash, cash equivalents, and other short-term deposits. So if everyone decided to immediately exchange their Tether for whatever, then 18% would not be covered and Tether would have a problem.
Coinbase emphasized that USDC is 100% backed by cash and short-dated US government bonds held in US-regulated financial institutions. As a result, it is always 1:1 exchangeable for US dollars.
It is worth noting that there is currently some kind of stablecoin war going on. Recently, Binance ended its support for USDC. This, in turn, led to a drop of approximately $3 billion in USDC market capitalization.
However, USDT currently simply remains the largest stablecoin, with a market cap of around $65 billion. USDC represents a market cap of approximately $42 billion and Binance’s stablecoin (BUSD) represents a market cap of approximately $22 billion.