© Reuters. FILE PHOTO: A representation of bitcoin is seen in an illustrative image taken June 23, 2017. REUTERS/Benoit Tessier/File Photo
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By Medha Singh and Lisa Pauline Mattackal
(Reuters) – The world of stablecoins suddenly looks shaky.
Seismic swings are possible in the $137 billion market after New York-based Paxos Trust Company, which mints Binance’s stablecoin, said it would stop issuing new BUSD tokens after currency regulators The US will label the asset as an unregistered security.
The US move has left investors questioning the future shape of the market for stablecoins, tokens that are typically backed by traditional assets like dollars and US Treasuries to tame the wild swings that characterize currencies. cryptocurrencies.
However, the immediate impact has not been negative for the stablecoin market as a whole; it has actually seen its total value grow by $2 billion since the Paxos announcement on February 13.
“There is too much demand for dollar-based stablecoins for them to go away,” said Alex Miller, chief executive of bitcoin developer network Hiro.
Instead, rivals are racing to cash in on the woes of BUSD, the world’s third-largest stablecoin, whose market value has shrunk to $12.9 billion from $16.1 billion, with a share market share shrinking to 9.4% from 12.1%, according to CoinGecko.com.
Market leading Tether (USDT) has been a big beneficiary, adding $1.9 billion to its market capitalization to reach $70.3 billion since the news. It now controls 52.6% of the stablecoin market, up from just over 51%.
Circle’s, the second largest stablecoin, rose over $700 million to $42 billion, raising its market share to 31.3% from 30.9%.
Chart 1: Unstable stablecoin, https://www.reuters.com/graphics/FINTECH-CRYPTO/WEEKLY/lgpdknrdovo/chart.png
AND THE WINNER IS… TETHER
Stablecoins are a key part of the cryptosphere, with their most stable in value meaning they are used to facilitate transfers between cryptocurrencies or in regular cash. Traders also use these tokens to hedge their positions, and therefore the decline in market value is associated with falling liquidity and leverage in the broader crypto market.
Markus Thielen, head of research and strategy at crypto firm Matrixport, said the Paxos announcement and the subsequent crash in BUSD had caused a big change in the stablecoin market.
“And tether wins.”
The broader impact of the crypto market also appears to have been contained with bitcoin rising 14% over the past week to $24,902, ignoring concerns that central banks will continue to hike rates.
One reason for the upbeat reaction is that BUSD is largely used for trading on Binance, the world’s largest cryptocurrency trading platform, while its use is limited in other parts of the cryptocurrency world, according to the firm. of Kaiko analysis.
“While BUSD is used in DeFi, it is not systemically important to the ecosystem,” said Kaiko’s Riyad Carey.
BET ON FUTURE PRICES
Developments around the Binance stablecoin have also fueled trading on competing platforms; since February 1, Binance’s bitcoin liquidity is down almost 30%, while that of US-based Coinbase (NASDAQ:) is up almost 15%, according to Kaiko.
Daily open interest for perpetual bitcoin-to-BUSD trades dropped from over 17,000 bitcoin in early February to 13,726 bitcoin, Binance data showed, suggesting that traders are withdrawing bets on BUSD futures prices .
While some uncertainty remains about the impact of the US Securities and Exchange Commission decision on other stablecoins, the market appears to have adjusted, according to some crypto players.
“This is unlikely to represent a major, market-critical structural change for now,” said Vetle Lunde, an analyst at Arcane Research. He added: “The application against USDC or USDT not domiciled in the US could have more dramatic implications.”