Analysis of Coinbase’s Ambitious Goal to Surpass Tether
Coinbase, a leading cryptocurrency exchange, has set an ambitious goal to make Circle’s USDC the world’s number one dollar stablecoin, challenging Tether’s current dominance in the stablecoin market. According to Coinbase CEO Brian Armstrong, this is a “stretch goal” that will push the company outside its comfort zone. As of now, USDC’s market cap stands at $56 billion, while Tether’s USDT accounts for a significant 60% of the stablecoin market with a market capitalization of $142 billion.
The stablecoin market has been growing rapidly, with the total market capitalization reaching $238 billion. The market capitalization of stablecoins is a reliable indicator of issuance, as they are designed to maintain a 1:1 peg with another currency, in this case, the U.S. dollar. Coinbase’s CFO Alesia Haas contextualized Armstrong’s bold call, stating that the company hopes to achieve this goal over the next few years.
Stablecoin Legislation and Its Impact
The push for stablecoin legislation is gaining momentum on Capitol Hill, with Sen. Tim Scott (R-SC) pledging to pass legislation covering stablecoins within the first 100 days of President Donald Trump’s term. The proposed GENIUS Act would create a pathway to legality for issuers of U.S. dollar-backed stablecoins, requiring them to share monthly audits on the health of the fiat reserves backing their products.
However, it is unclear how sweeping stablecoin legislation could ultimately impact USDC, USDT, or any stablecoin. JP Morgan analysts have suggested that Tether may be forced to change the structure of its dollar-equivalent reserves, which currently consist mostly of cash and cash equivalents, including assets like U.S. Treasuries and money market funds. Tether has published attestation reports about its reserves, but these reports have not been audited.
Competition Between USDC and USDT
Circle, the issuer of USDC, has also published attestation reports about its reserves, but these reports have not been audited either. Bitwise Senior Investment Strategist Juan Leon believes that if stablecoin regulation passes in the U.S., it will disproportionately help USDC gain market share. However, Leon notes that USDC would need to become the predominantly used stablecoin in developed markets to have a chance at surpassing USDT.
USDC’s market capitalization has been growing rapidly, with a 24% increase in the past year. However, USDT’s market capitalization has also been growing, with a 15% increase in the past year. The competition between USDC and USDT is expected to intensify, with both stablecoins vying for market share.
On-Chain Activity and Use Cases
On-chain activity involving stablecoins is largely concentrated on networks that support smart contracts, such as Ethereum and Solana. Coinbase’s Armstrong believes that growing USDC’s footprint on the Ethereum scaling network Base, which Coinbase itself created and launched, is key to increasing USDC’s market share.
Stablecoins have various use cases, including remittances, payments, and decentralized finance (DeFi). According to former SEC Chair Gary Gensler, stablecoins are like “poker chips” used in DeFi, allowing traders to easily park funds and lock in gains. However, the use of stablecoins in money laundering and sanctions evasion has also drawn controversy.
Coinbase’s Strategy
Coinbase is taking an offensive approach to growing USDC, with plans to accelerate the market cap growth of USDC through more partnerships and new use cases, such as adding payments support across its product suite. In its shareholder letter, Coinbase described USDC as “the fastest growing ‘major’ stablecoin in 2024,” with $12 billion in on-chain USDC payments facilitated by the exchange.
Stablecoin revenue totaled $224 million in Coinbase’s fourth quarter, representing just 9.4% of the company’s total sales. However, during the bear market in 2023, stablecoin revenue bolstered Coinbase’s subscriptions and services segment, which temporarily surpassed transaction revenue as the company’s main money maker.
Predictions
Based on the analysis, here are some predictions for the stablecoin market:
- Increased competition between USDC and USDT: The competition between USDC and USDT is expected to intensify, with both stablecoins vying for market share.
- Growing demand for audited reports: As stablecoin legislation gains momentum, there will be a growing demand for audited reports from stablecoin issuers, which could give USDC an edge over USDT.
- Expansion of stablecoin use cases: Stablecoins will continue to expand their use cases, including remittances, payments, and DeFi, driving growth in the stablecoin market.
- Increased adoption of USDC: As Coinbase continues to push for the adoption of USDC, we can expect to see increased adoption of USDC in developed markets, potentially challenging USDT’s dominance.
- Regulatory clarity: The passage of stablecoin legislation will provide regulatory clarity, which could lead to increased investment and adoption of stablecoins.
Overall, the stablecoin market is expected to continue growing, with increasing competition between USDC and USDT, and expanding use cases driving growth. However, regulatory clarity and the outcome of the competition between USDC and USDT will be crucial in determining the future of the stablecoin market.
