Digital currencies have a somewhat special role in the cryptocurrency asset ecosystem. To put it simply, companies that issue stablecoins collect dollars or euros from investors who wish to obtain cryptocurrencies, and in exchange they credit their accounts with stablecoins, the latter replicate the reference currency (dollars or euros). Stablecoins are themselves digital assets but with the mission of replicating the price of a traditional currency. So normally, each token issued is backed by an equivalent amount of dollars or euros.

In the best of all possible worlds, companies keep the dollars received from investors so that they can send them back to anyone who wants to part with their tokens and get their real money back. This fundamental principle has been widely questioned by many experts in the Tether case. We will look at the second largest stablecoin in the market in terms of capitalization. The stablecoin market is, at the time of writing, worth over $130 billion and Tether holds over half of that.

 

Top 4 stablecoins (USDT, USDC, BUSD, DAI) > $5bn Market Cap
Source: Glassnode

The challenger: USD Coin (USDC)

The second stablecoin in terms of capitalization, accounts for 33 billion USDC in circulation. This was created in 2018 by Circle (which raised $440 million in May 2021), a company that is part of the "CENTRE" consortium. The consortium was created by the Coinbase platform. As you can see, as a stablecoin, the objective is to replicate the reference currency, in this case for the USDC, the dollar. The major difference with the "traditional" dollar is the ability of the USDC to transfer funds instantly without limit of amount, while minimizing costs and especially without verification by a central authority. But why should we trust the USDC more than any other stablecoin?

From a technological point of view, the USDC is an ERC-20 token (Ethereum standard) and the consortium uses smart contracts (mainly on the Ethereum blockchain) so that the issuer can verify whether the token in question corresponds to the value of the funds deposited. In addition, USDC aims to be pro-regulation, so it is issued by financial institutions that are licensed by regulators. At inception, the company ensures that it can exchange 1 USDC for 1 USD at any time. In addition, it publishes monthly figures on its reserves through the firm Grant Thornton LPP and the shares of assets denominated in dollars:

 

USDC Reserve Breakdown August 2021
Source: Circle.com

The token aims to become a benchmark for independent electronic payment by being able to be used in all transactions. Now let's get to the numbers and the charts:

Comparison of the evolution of the number of USDT and USDC addresses:

Despite an ultra-dominance of the Tether behemoth, we can see in the numbers an increasing share of USDC in the stablecoin market. These numbers are verified in the on-chain data. If we look at the number of new addresses per day, USDC is nibbling a little bit more of the pie over time. Take a look at the graph below:

 

Number of new USDC and USDT addresses (2020/2021)
Source: Glassnode

Finally, a large amount of USDC is used in decentralized applications running smart contracts. In terms of quantity, almost half of the USDC in circulation is locked up in smart contracts. The digital currency is widely developed and is even taking the lead in decentralized finance (DeFi) as a "collateral" due to its stability.

Number of transactions and daily active users in DeFi for the main stablecoins
Source: Circle.com

The percentage of the total token supply that is held in USDT and USDC smart contracts
Source: Glassnode

Could we ever consider a stablecoin as an extension of traditional currencies? For Aristotle, a currency is composed of three main functions: a store of value, a unit of account and a medium of exchange. In today's world, this definition by Plato's disciple is still valid. Money has taken different forms throughout history: salt, mother-of-pearl, beef, precious metals... Today, it is fiduciary and scriptural money that is used on a global scale. As dematerialization becomes more and more important in society, money is also affected. In the cryptosphere, as we have seen, we talk about stablecoins to replicate the face value of a fiduciary currency, a conception of money 3.0 where it is possible to appreciate the monetary character defined by the ancient Greek philosopher. However, there are many "stablecoins" in the political-financial sphere. At the same time, many countries are developing their own CBDM (Central Bank Digital Currency) seeing the benefits that blockchain technology brings.