Tether Faces Decline Amidst Rising Stablecoin Competition and Regulatory Changes

Renowned blockchain tracker and analytical platform Whale Alert has recently revealed in an X post that an address containing 28,257,162 USDT (equivalent to $28,267,638) has been frozen. This significant event is part of broader shifts and developments in the stablecoin market.

Stablecoins have continued to be in demand and taking market share of fiat currencies, even with the failures and de-pegging of some stablecoins in the recent past. The market is still highly centralized, with Tether’s USDT still dominating the scene. However, it has declined in the past two years even though it was once the market giant.

According to the data provided by Kaiko, the USDT market share on CEXs has reduced significantly from 82% to 74% in 2024. This decline could be attributed to various factors, including rising competition from other stablecoins like FDUSD. Because of the advantage of Binance zero-fee trading and shifting demand towards regulated assets like USDC.

USDC’s market capitalization increased to 12% by the end of June due to the trading volumes on Binance, Bybit, and OKX. Interest-generating stablecoins have also gained popularity, with initiatives from Paxos and Tether in Q2 to meet the demand.

The enhancement of MiCA has, therefore, increased the demand for stablecoins that are in line with the regulation, which is favorable to Circle’s USDC. The platform suggested that USDC is the highest-regulated stablecoin.

As of now, non-compliant stablecoins hold a market capitalization of 8% out of the stablecoins’ market capitalization. However, this is poised to change due to MiCA, which was implemented on June 30th. This regulation would more likely result in market makers’ preference for compliant stablecoins over non-compliant ones.

In response, Binance, Bitstamp, Kraken, OKX, and other major cryptocurrency exchanges have already stopped accepting the above-mentioned non-compliant stablecoins. Data from Kaiko reveals that more and more people have been using compliant stablecoins in the last year, with USDC being the most preferred.

Tether is under pressure, and new regulated and innovative stablecoins are entering the market due to changes in regulations and competition. As a result of these changes, compliant and yield-bearing stablecoins are expected to increase, which would show a change in the market trend.