The exchange is communicating to its users that USDT is no longer a reliable stablecoin. Instead, the users must switch to a different stablecoin, asking them to go for USD Coin (USDC).
Coinbase Asks Users to Shift to USDC
The cryptocurrency exchange has decided that it is going to change its stance towards USDT. For this purpose, the exchange is now asking its users to shift from the largest stablecoin.
It seems that the exchange is now endorsing a different stablecoin. It is asking users to convert their USDT holdings to USDC.
USDC is the second-largest stablecoin that is pegged with the dollar as well. The company behind the creation and issuance of USDC is Circle and the stablecoin has been co-founded by Coinbase itself.
Reason Given by Coinbase
While asking the users to adopt USDC, the exchange has cited the security and backing of the stablecoin versus the like of USDT.
According to the officials, USDC is much more secure than USDT and is fully backed by physical assets. On the other hand, USDT still claims that 75% of its assets are backed by physical assets.
This means that the liquidity behind the USDC stablecoin is more reliable than USDT.
For a long time, Coinbase has kept offering USDT and USDC both to their customers without raising a single concern. However, the running year has been much different for the crypto industry than in the past.
This is because, in the year 2022, two major crashes (FTX & Terra) have taken place. In both cases, the ultimate reason was the assets not being fully backed by liquidity.
Therefore, the cryptocurrency industry ended up facing major losses as a result of both incidents. The crypto industry is still finding it much more difficult to recover from the downtrend.
Statement by Coinbase
Coinbase has also released a statement where it has openly supported and endorsed the USDC. It has claimed that during the difficult times, they have found USDC to be quite reputable and trusted.
Therefore, they have decided to make it much easier for the users to be able to switch from USDT to USDC.
The exchange officials have confirmed that they have waived the fees that the users would incur for converting their assets from USDT to USDC.
With the latest update and stance, Coinbase has made a very smart and strategic move to endorse USDC. However, it is true that USDC is much more secure than USDT when it comes to being liquidity-backed.
USDT Lost its Dollar Peg
On a number of occasions, Circle has confirmed that their USDC is fully backed by liquidity. However, USDT has failed to confirm the same, despite being the largest stablecoin.
In both the incidents of Terra and FTX crashes, USDT ended up losing its dollar peg. Although the de-pegging stayed for a brief moment, still, it was enough for the entire crypto community to notice.
The USDT losing its dollar peg on both occasions is a confirmation that the USDT is not fully backed. Just as the investors start liquidating their possession in USDT, it ends up losing its dollar peg.
On the other hand, the USDC has proven to be quite resilient against market downtrends. On both major crashes, the USDC price has remained unmoved, which is a huge reassurance for the crypto community.
Uncertainty is Always There
Although Circle has tried providing all the proof they can from their end about their stablecoin being fully backed, uncertainties are still there.
This is mainly because people are uncertain about the future of cryptocurrencies and they count the stablecoins among the cryptocurrencies.
This is where the decision falls on the credibility of an asset. If USDC has higher security and backing than USDT, it will eventually end up surpassing the (current) largest stablecoin.