TLDR
- JPMorgan warns that Circle will face fierce competition from Tether, Hyperliquid, and fintech firms.
- Tether’s USAT aims to comply with the GENIUS Act, improving trust and cutting costs.
- Hyperliquid’s USDH stablecoin may reduce USDC’s market share in the near future.
- JPMorgan predicts stablecoin market competition may become zero-sum unless the crypto market grows.
Circle, the issuer of the USDC stablecoin, is facing growing competition from several major players in the stablecoin market, according to JPMorgan analysts. With Tether preparing to launch a new stablecoin, USAT, and Hyperliquid planning the introduction of USDH, the competition is set to intensify. Additionally, fintech companies like Robinhood and Revolut are working on launching their own stablecoins, further challenging Circle’s dominance.
JPMorgan’s analysts noted that the stablecoin market could turn into a “zero-sum game” for U.S.-based issuers, meaning that competition will likely be limited to market share battles, unless the overall cryptocurrency market grows substantially. Currently, the total stablecoin market is valued at around $278 billion, but it has remained a relatively small portion of the total crypto market cap, hovering just under 8% since 2020.
Tether’s USAT and the Push for Institutional Trust
Tether plans to launch USAT, a stablecoin designed to be fully compliant with the U.S. GENIUS Act, which aims to regulate stablecoins more strictly. Unlike Tether’s flagship USDT, which currently has about 80% of its reserves compliant with U.S. regulations, USAT will be fully backed by reserves held with Anchorage Digital, a federally chartered trust bank.
By custodying USAT reserves directly with Anchorage, Tether aims to build institutional trust, reduce its reliance on third-party banks, and cut operational costs.
This move will also help Tether mitigate risks, such as those experienced by Circle during the 2023 Silicon Valley Bank collapse. Furthermore, controlling its own reserves will allow Tether to retain more yield and improve profit margins, giving it a competitive edge in the stablecoin market.
Hyperliquid’s USDH to Challenge USDC’s Market Share
Hyperliquid, a crypto futures exchange, is preparing to launch its own stablecoin, USDH, moving away from its reliance on USDC. The exchange’s futures market already accounts for around 7.5% of USDC usage, which suggests that the launch of USDH could significantly reduce USDC’s market share.
The introduction of a new stablecoin by Hyperliquid indicates how quickly the competitive landscape is shifting, with new players entering the market aiming to offer alternatives to Circle’s USDC.
The stablecoin market is evolving rapidly, and the shift towards USDH highlights the growing trend among crypto platforms to develop their own stablecoins, reducing their dependence on third-party issuers like Circle. As competition heats up, Circle will need to continuously innovate and adapt to maintain its dominance in the market.
A Zero-Sum Game for U.S. Stablecoin Issuers?
JPMorgan analysts suggested that the stablecoin market could become a “zero-sum game” for U.S. issuers. This means that instead of growing the total market, issuers will mainly compete for existing market share.
The analysts highlighted that the supply of stablecoins has closely tracked the overall crypto market cap, meaning that unless the crypto market expands significantly, issuers will have little room for growth outside of market share shifts.
The analysts also noted that stablecoin supply has remained stable at around $278 billion, while the percentage of the total cryptocurrency market cap represented by stablecoins has remained consistently low, below 8%. Unless the cryptocurrency market expands significantly, competition for stablecoin dominance will likely remain fierce and highly competitive, with Circle facing challenges from both new entrants and established players like Tether and Hyperliquid.
