- USDT vs. USDC — The Big Flippening That Is Approaching Fast and That Nobody Talks About
Illustration by Sylvain Saurel
In the Bitcoin world, you often hear about flippening. For newcomers, this is when Bitcoin’s market cap will exceed gold’s market cap. To give you an idea of how far we have to go, Bitcoin’s market cap is currently $947B, while gold’s market cap is $11.326T. So the Bitcoin market cap will have to go almost x12 to overtake gold at the current Bitcoin price of around $50K.
Beyond the Bitcoin world alone, you often hear about the flippening between Bitcoin and Ethereum. This is the moment that all Ethereum supporters have been dreaming about for years: the moment when Ethereum’s market cap could surpass Bitcoin’s.
While Bitcoin’s market cap is currently $947B, Ethereum’s market cap is 479B. The ratio is 1.97. As you can see the road ahead looks easier for Ethereum to surpass Bitcoin’s market cap. However, beyond the raw numbers, things are more complicated, as the link between Bitcoin’s market cap and Ethereum’s is much stronger.
So when Bitcoin’s market cap falls, Ethereum’s tends to fall as well. Bitcoin is the king of digital currencies and acts as a compass. The evolution of its price sets the tone for the entire cryptocurrency market. For Ethereum to overtake Bitcoin’s market cap, Bitcoin would have to stop being the natural entry point for all new investors in this universe.
Not easy, if not impossible. But only time will tell.
In the world of smart contract platforms, the term flippening refers to the possibility of one of Ethereum’s competitors overtaking its market cap. Until recently, everyone was betting on Cardano, but now Solana seems to be holding the line. If it’s not Solana, it will be another Altcoin. With all these platforms offering nothing unique, competition is raging, and Ethereum may well be overtaken before its supporters have even seen their dream come true.
As you can see, the term flippening refers to a whole bunch of different things in the cryptocurrency world. However, there is one flippening that has been approaching fast for several months now, and no one is talking about it enough.
In the world of stablecoins, those famous cryptocurrencies linked 1:1 with the US dollar, we have a hegemonic leader for several years: Tether which you see more often written via its ticker USDT.
Tether is issued by the eponymous company Tether which is based in Hong Kong. The token’s peg to the USD is achieved via maintaining a sum of commercial paper, fiduciary deposits, cash, reserve repo notes, and treasury bills in reserves, that is equal in USD value to the number of USDT in circulation.
Originally launched in July 2014 as Realcoin, a second-layer cryptocurrency token built on top of Bitcoin’s blockchain through the use of the Omni platform, it was later renamed to USTether, and then, finally, to USDT. In addition to Bitcoin Blockchain, USDT was later updated to work on the Ethereum, EOS, Tron, Algorand, and OMG Blockchains.
The main problem with Tether is that the 1-to-1 link to USD is not secured with USD only, and audits conducted by the company to prove its seriousness have never put an end to doubts about it.
In April 2019, the Attorney General of the State of New York accused the Bitfinex exchange platform of using Tether to hide the absence of $850M since mid-2018. Tether has since been convicted for these facts and had to pay an amended while not being able to operate in the state of New York. Enough to fuel the notorious Tether FUD that keeps coming up in the Bitcoin world to say that the price of Bitcoin is artificially inflated by the out-of-thin-air creation of Tether tokens.
The unclear relationship between Bitfinex and Tether is problematic for many people, as is the apparent lack of long-term banking relationships.
In addition to Tether, there are several other stablecoins, but one, in particular, should get your attention. This is the USD Coin, which you know by its ticker USDC.
USD Coin (known by its ticker USDC) is a stablecoin that is pegged to the U.S. dollar on a 1:1 basis. Every unit of this cryptocurrency in circulation is backed up by $1 that is held in reserve, in a mix of cash and short-term U.S. Treasury bonds. The Centre consortium, which is behind this asset, says USDC is issued by regulated financial institutions.
The consortium includes Circle, which is behind USDC, Coinbase, and Bitcoin mining company Bitmain.
This stablecoin was launched in September 2018 with a limit base initially. USDC’s mantra is clear: “digital money for the digital age”. USDC was designed for a future world where everything will become digital and cash will tend to disappear. For all these cashless transactions, the founders of USDC hope that their corner will become the reference.
The tokenization of the US Dollar into USD Coin happens in a three-step process:
- A user sends US dollars to the coin issuer’s bank account.
The issuer uses a USD Coin smart contract to create the equivalent amount of USD Coin.
The newly minted USD Coins are sent to the user and the substituted US dollars are held in a reserve.
A strong point of USD Coin is the fact that the company behind it is established in America which obliges it to respect the laws in force which are more demanding. USDC reserves are regularly attested by Grant Thornton. This reassures investors of the seriousness of USDC.
Faced with the vagueness that surrounds USDT, the trend for several months is to switch to USD Coin for many investors. I was interested in the evolution of the market cap of these two leaders of the stablecoin world since January 2020:
USDT vs USDC market cap evolution — Illustration by Sylvain Saurel
The figures in this table are expressed in millions of dollars. Visually, we can see that the catch-up of the USDC market cap to the USDT market cap has accelerated since June 2021:
Market Cap Evolution for USDT and USDC — Illustration by Sylvain Saurel
Even more interesting is to observe the ratio between the market cap of USDT and the market cap of USDC :
Market Cap Ratio USDT / USDC — Illustration by Sylvain Saurel
This ratio has been steadily decreasing and now aims at 1 for parity. The gap is still substantial in absolute terms, as there is still more than $34 billion in favor of USDT in terms of market cap.
Nevertheless, the trend has been clearly in favor of USDC for several months. The massive arrival of new American investors in the coming months could favor USDC over USDT. Similarly, a Bear Market in the future could also play its part in favor of this flippening that nobody is talking about.
Indeed, if you want to sell your cryptocurrencies for stablecoins, what would you prefer? An American stablecoin whose accounts are certified monthly, or a Hong Kong-based stablecoin about which doubts have never faded over the years?
I’ll let you answer that question, but I suspect that many will switch to USDC. That will be what causes this flippening in the stablecoin world in the future in favor of USDC.
- Date of publication:
- Sun, 12/19/2021 - 12:02
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