Tether has long dominated the stablecoin sector thanks in large part to USDT’s status as the first fiat-backed stablecoin.

However, new serious competitors have entered the stablecoin market over the past several years, giving USDT (USDT) a run for its money.

Since 2024, the transaction volume of Circle’s stablecoin, USD Coin (USDC), has been on the rise.

According to payments giant Visa, USDC’s monthly transactions flipped USDT for the first time in December 2023.

In March 2024, USDC’s transaction volume began to rise steadily, maintaining its dominance while USDT lost transaction volume. On March 24, 2024, USDC closed the week with almost five times more volume than USDT.

On April 21, 2024, USDT’s weekly transaction volume downtrend continued, shrinking to $89 billion while USDC increased to $455 billion.

While USDC launched in 2018, it has already reached 20% of the total stablecoin market. 

The battle for stablecoin leadership is clearly between USDT and USDC, as together they cover 90% of the total stablecoin market, according to a January 2024 report from crypto exchange OKX.

According to on-chain data, USDC is absorbing crypto’s institutional adoption. This may threaten USDT’s hegemony, as institutional investors are expected to drive the bull market.

Stablecoins race to attract institutional investors

The crypto market has evolved greatly over the years, from a market flooded by fraudulent projects in the initial coin offering (ICO) era to a market that is set to onboard major institutional investors following the approval of spot Bitcoin exchange-traded funds earlier this year.

The crypto market has matured and may have stepped into a “new phase” where “compliance is super important,” as former Binane CEO Changpeng Zhao posted on X on May 2.

Recent: Bitcoin L2s set to explode as Runes congest BTC network

This focus on compliance is opening up competition between companies that wish to attract the new wave of investors entering the crypto market — i.e., stablecoins that are compliant will come out on top.

In this regard, USDT — which has previously been the target of reports casting doubt on the fidelity of its reserves — faces a challenge.

Ruslan Lienkha, chief of markets at fintech firm and crypto exchange YouHodler, told Cointelegraph:

“USDT is an offshore stablecoin with a lack of transparency and regulation, while USDC is closely watched by U.S. authorities.”

Tether is based in the British Virgin Islands, which is considered a tax haven for off-shore banking. In contrast, USDC issuer Circle is under U.S. jurisdiction, as it’s based in Boston, Massachusetts.

USDC’s strategy of branding itself as a fully regulated, transparent stablecoin may be pushing Tether to try to clean up its public image. On April 1, it completed a “gold standard” independent audit from the ​​American Institute of Certified Accountants.

Upcoming regulation frameworks in the United States and Europe may be factors that attract regulatory-compliant users to use USDC over USDT.

On April 17, the Lummis-Gillibrand Payment Stablecoin Act was introduced in the United States Congress. If it becomes law, it will affect all stablecoins in the U.S. market.

If Tether wishes to get a stamp of approval from U.S. authorities, it will need to change its off-shore establishment to avoid missing out on one of the biggest markets in the world.

In the European Union market, the upcoming Markets in Crypto-Assets regulatory framework will require stablecoin issuers to register as e-money issuers starting June 30.

In anticipation of the regulations coming into full effect later this year, Circle has placed EURC — the sister version of USDC, pegged to the euro — in an advantageous position.

Recent: Binance ties SAFU fund to USDC: Is the fund missing out on potential gains?

On March 21, 2023, Circle applied for a Digital Asset Service Provider license from the French regulatory authorities.

The permissions would grant Circle to become a registered digital asset service provider, which would “enable Circle to on-shore its flagship product for the European market” and “begin the process to become MiCA conforming e-money token under the new regime,” according to a press release. Tether still hasn’t applied to become an e-money issuer in the EU.

USDC’s consolidation in transaction volume may be a cue that Tether should not ignore. If it becomes the norm, Tether may have already lost its crown as the king of stablecoins.