Tether’s USDT climbed to a record high this week as recent DeFi hacks pushed traders toward the deepest-pocketed stablecoin, underscoring a widening gap with Circle’s USDC.
What happened
- Since the Solana-based Drift Protocol was drained for about $285 million this month — and after another large exploit blamed on attackers allegedly linked to North Korea — market participants have funneled capital into USDT. CoinGecko data shows USDT’s market cap jumped about 2.1% to nearly $188 billion, with Tether CTO Paolo Ardoino flagging the milestone on Twitter. USDC rose more modestly, up roughly 1.4% to $78.25 billion.
Why it matters
- The flow into USDT highlights how liquidity and exchange integration matter during crises. Jake Kennis, senior research analyst at blockchain analytics firm Nansen, told Decrypt that USDT’s deeper liquidity across centralized venues gives it a faster “flight to safety” path when users want to exit on-chain positions quickly. “While both stablecoins remain well-collateralized, USDT’s broader exchange integration and larger existing market share create network effects that tend to compound during periods of elevated protocol risk,” he said.
Pressure on USDC and related firms
- Analysts at Compass Point warned in a Tuesday note that DeFi outflows could reduce USDC’s on-chain circulation. That matters because Circle and Coinbase earn interest from backing assets — largely U.S. Treasuries — and fewer on-chain USDC holdings or more USDC held on exchanges with yield-sharing arrangements would squeeze that revenue. “DeFi outflows may result in users offramping USDC or holding USDC on exchanges with yield sharing arrangements,” the note said. “Either outcome will put pressure on CRCL and COIN’s gross profit, via lower interest revenue or lower margins.”
Chain reaction in DeFi
- Compass Point’s view is informed by how quickly roughly $1.5 billion in stablecoins was withdrawn from lending protocol Aave after attackers exploited restaking project Kelp DAO and manipulated borrowed funds on Aave. The turbulence has left protocols and users scrambling for liquidity and safe exits.
Regulatory and legal fallout
- Drift’s exploit intensified scrutiny on Circle after attackers used parts of Circle’s infrastructure to move millions between networks. That movement prompted a class-action lawsuit accusing Circle of failing to freeze the funds; Circle has defended its actions, and CEO Jeremy Allaire argued that unilateral freezes create a “significant moral quandary.” Meanwhile, Drift said it will stop supporting USDC after receiving recovery commitments from Tether.
Market impact on Circle stock
- Compass Point’s analysts assigned Circle shares a “Sell” rating with a $77 price target. The stock traded below $98 on Tuesday, down about 8% over the prior day, per Yahoo Finance.
Bottom line
- Recent hacks and the resulting liquidity scramble have amplified USDT’s dominance in the short term, demonstrating the advantages of broad exchange integration during stress events. For Circle and Coinbase, the episode may translate into meaningful revenue pressure if on-chain USDC usage continues to fall.
Decrypt has reached out to Circle and Tether for comment.
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