The market capitalization of Circle’s USDC stablecoin has been dropping dramatically since the Tornado Cash scandal.
Over the past month, USD Coin (USDC) has lost nearly 20% of its market capitalization, falling from $53.3 billion to just under $43.9 billion. In a single day (September 26), almost $5 billion in USDC was withdrawn, representing a loss of nearly 9.2% of its total capitalization.
This would be the sharpest contraction in the history of USDC. The stablecoin peaked in July when it reached $55.8 billion in market capitalization.
The Consequences of Freezing Tornado Cash-Linked Addresses
Although USDC began losing presence in July, the decision to freeze over 75,000 USDC of funds linked to 44 Tornado Cash addresses was a decisive event, causing the stablecoin to lose community sympathy resulting in backlash and mass withdrawals.
Circle just frozen 75,000 USDC belonging to unsuspecting Tornado users, as well as 149 USDC donated to the project. pic.twitter.com/GBS41FtZvB
— banteg (@bantg) August 8, 2022
Even MakerDAO, which had a large part of its reserves backed in USDC, considered the measures taken by Circle as a violation of privacy rights. The project started to talk about canceling its dependence on USDC, arguing that at any moment, it could suffer the same fate as the wallets linked to Tornado Cash, given the extreme level of centralization that USDC has by nature.
However, while everything seemed to point to MakerDAO turning against USDC, yesterday, they announced the approval of a new proposal to deposit USDC on Coinbase’s institutional custody platform, escrowing up to $1.6 billion of their USDC reserves on Coinbase Prime to generate 1.5% in rewards.
So while USDC’s capitalization continues to plummet as the days go by, there are still major projects that continue to bet on its future recovery.
Circle vs. Binance Or USDC vs. BUSD: Two Giants Fight for Dominance
As reported by CryptoPotato, another challenge USDC is facing is the ongoing battle for stablecoin market dominance being waged by Binance. The world’s largest cryptocurrency exchange wants to make its stablecoin the second most valuable stablecoin on the market, dethroning USDC and sitting behind USDT.
Currently, BUSD has a marketcap of $21.62 billion. Unlike USDC, Binance’s native stablecoin has grown steadily by more than 22%, from $17.64 billion to over $21.62 billion since August 12.
Although the current outlook does not show such a positive future for USDC, the project will likely manage to maintain its position in the top 5 cryptocurrencies. However, they need to regain the trust of some big exchanges and projects in the crypto community, and probably the compliance card could attract more players to its camp.