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U.S.-based crypto exchange Coinbase surprised industry watchers by showing a preference for one stablecoin over another. Specifically, the company has encouraged customers to convert their USDT stablecoin to USDC.
The crypto exchange appears to be suggesting that USDC is a more secure alternative. To encourage customers to make the conversion, the company even waived fees for retail customers.
“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,” Coinbase said, according to Cointelegraph.
Previously, crypto exchanges used stablecoins as an onboarding tool but their role has since changed as they become a key market player and liquidity source. While they are widely used these days, there has always been some degree of skepticism regarding the reserves backing these stablecoins.
The reserve issue was recently highlighted after the collapse of the crypto exchange FTX, which caused some firms with exposure to the exchange and its sister company Alameda Research to go bankrupt. The New York Times also reported that Binance’s Changpeng Zhao accused FTX’s Sam Bankman-Fried of trying to drive down the price of Tether (USDT).
A day before FTX filed for bankruptcy, Tether published the latest quarterly attestation on November 10. The report showed that as of September 30, 2022, “82% of Tether’s reserves are held in cash, cash equivalents, and other short-term deposits.”
Meanwhile, USDC is a hundred percent backed by “cash and short-dated U.S. treasuries held in U.S. regulated financial institutions” so it can always be redeemed 1:1 for U.S. dollars, according to Coinbase. The USD-pegged stablecoin is issued by Circle in 2018 and co-founded by Coinbase.
While the debate on how to audit reserves continues, there is a “stablecoin war” going on between exchanges. Before Coinbase’s recent move to encourage its customers to convert their USDT to USDC, crypto exchange Binance cut support for USDC, which caused the market cap of the Coinbase co-founded stablecoin to drop by $3 billion.
With a market cap of around $65 billion, Tether-issued USDT remains the largest stablecoin. USDC’s market cap is currently at $42 billion while BUSD, Binance’s stablecoin is valued at $22 billion.
