US-based cryptocurrency exchange Coinbase has asked its customers to convert their Tether-issued USDT (USDT) stablecoins into USD Coin (USDC), a USD-pegged stablecoin issued by Circle and co-founded by Coinbase in 2018.
The cryptocurrency exchange has suggested that USDC is a much safer alternative after the FTX crash saga, and has also freed up any fees for converting USDT to USDC on its platform. The firm said:
“We believe that USD Coin (USDC) is a trusted and respected stablecoin, which is why we are making the transition easier: Starting today, we are waiving fees for retail clients worldwide for converting USDT to USDC.”
Stablecoins started as a tool for crypto exchanges in the early days of cryptocurrencies, but today they have become a key player in the market and a source of liquidity. However, their reserves backing these stablecoins have always been scrutinized. A stablecoin, by definition, must be backed by $1 or its equivalent.
The reserves debate intensified after the FTX crash as many of the firms associated with the tainted exchange and its subsidiary Alameda Research went bankrupt. There was another allegation that Binance CEO Changpeng Zhao traded barbs with former FTX CEO Sam Bankman-Freed and accused him of trying to lower the USDT peg.
FTX post-strike sensation: shortly before bankruptcy, @cz_binance accused @SBF_FTX of trying to drive down the price of Tether. They exchanged barbs in a group chat with other crypto leaders. “The more damage you do now, the longer the prison term will be,” CZ said. https://t.co/OTlYgoEruJ.
— David Yaffe-Bellany (@yaffebellany) December 9, 2022
Tether released its latest quarterly evaluation on November 10, just a day before the exchange filed for bankruptcy. The report notes that as of September 30, 2022, 82% of Tether’s reserves are held in cash, cash equivalents, and other short-term deposits.
Coinbase also stressed that USDC is 100% backed by “U.S. cash and short-term U.S. Treasury bills held in U.S. regulated financial institutions” and can always be exchanged for U.S. dollars at a 1:1 ratio.
Related: Circle co-founder says converged dollar ledgers on Binance will be good for USDC
In addition to the reserve audit debate, there is also a growing “stablecoin war” between crypto exchanges. Coinbase’s request to convert USDT to USDC comes just a couple of months after Binance, another global player, ended support for USDC, causing the market cap of Coinbase’s co-founded stablecoin to drop by $3 billion.
Issued by Tether USDT is the largest stablecoin by market share with a market cap of $65 billion, USDC currently has a market cap of $42 billion but has quickly eaten USDT’s market share. Binance’s stablecoin, BUSD, currently has a market capitalization of $22 billion.
Tether did not respond to ‘s requests for comment at press time.