USD-C Undisputed Leader In DeFi: Impact of Legislation?

Usd-c Undisputed Leader In Defi – But Can Legislation Change That?

5 June 2025 on 21: 02

Reading time: 3 minutes

Regulation around stablecoins could lead to a significant number of new competitors for Circle and its USDC stablecoin in the United States. However, in the decentralized finance (DeFi) space, a serious competitor seems unlikely in the near term, according to analysts at investment bank Compass Point.

While Tether’s USDT is the dominant player in emerging markets, Circle’s USDC has a strong presence on the growing number of decentralized exchanges, lending protocols, and other DeFi environments, as noted by analysts Ed Engel and Joe Flynn in a recent note.

Circle planned to debut on the New York Stock Exchange on Thursday, targeting a $6,9 billion valuation, based on an IPO price of $31 per share. A key advantage supporting that valuation is USDC’s widespread adoption in DeFi, according to analysts at Compass.

“USDC is the most traded asset on decentralized exchanges,” they stated. “In fact, USDC is the most widely used stablecoin in most DeFi applications.”

Stablecoins are digital assets that are pegged to the value of a fiat currency, such as the US dollar. Within the crypto world, they are often used to store profits or as collateral for loans. This application has now been expanded to include payments and remittances.

Over the past year, trading volumes on decentralized exchanges have increased relatively compared to centralized exchanges, accounting for 26% of daily trading volumes, or $14 billion, this month, compared to 8% a year ago, according to data from crypto data provider Messari.

DeFi activity is focused on networks like Ethereum and Solana, but Circle has issued USDC on at least 40 different networks, according to Messari. To achieve this, Compass Point analysts say, “Circle programmed a custom version of the stablecoin across multiple chains using proprietary technology.”

This feature allows users to exchange USDC between networks cost-efficiently, without the hacking risks often associated with so-called bridges, which hold token reserves on one network while issuing equivalents on another.

The analysts noted that PayPal’s PYUSD stablecoin received a lot of attention last year but has yet to gain much traction. The company attempted to increase PYUSD’s market share by offering “unsustainable returns on DeFi protocols,” but the supply remains below $1 billion to date.

Despite its position as the dominant stablecoin in DeFi, USDC faces challenges, including the sensitivity of the stablecoin’s supply to market conditions. Circle’s revenues largely come from yield-bearing assets, such as U.S. Treasuries, which back its stablecoin. A drop in USDC supply could negatively impact the company’s financials, especially since over a quarter of USDC supply is held in DeFi applications. The health of the altcoin market is crucial to maintaining current cash flows.

“When altcoins rise, DeFi yields typically increase, leading to more demand for USDC,” they argue. “However, if altcoin prices lag, it could slow USDC growth even if stablecoin legislation is passed.”

Frequently Asked Questions

What role does USDC play in the DeFi sector?
USDC is the most widely used stablecoin in the DeFi sector, and is widely traded on decentralized exchanges and lending protocols, underscoring its dominant role in the ecosystem.

What are stablecoins and how are they used?
Stablecoins are digital assets that are pegged to fiat currencies, such as the US dollar. They are often used to store profits or as collateral for loans, as well as for payments and remittances.

What are the potential risks for USDC?
USDC is sensitive to market conditions that could affect demand for the stablecoin, and Circle's financial health depends on the amount of USDC in circulation and the performance of the altcoin market.

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