Data by Flipside Crypto shows how USDC and DAI are slowly but surely gaining on USDT in terms of market cap. USDC has a market cap of $2.74 billion whilst DAI has a market cap of $608 million.
What is the reason for this sudden surge in USDC and DAI market cap? Both USDC and DAI are popular stable coins used in various Decentralized Finance (DeFi) protocols.
DeFi is the cryptocurrency industry’s answer to financing. DeFi offers a democratized alternative to traditional financial systems in the sense that you can borrow money without the need for a bank’s approval. By using cryptocurrencies such as Bitcoin and Ether as collateral, you can now borrow fiat to finance a project and turn a dream into reality.
One would typically use a stable coin as the preferred currency when borrowing funds. For the simple reason that stable coins do not fluctuate like other cryptocurrencies and you can rest assured that you will owe as much as you borrowed. Market volatility will not impact the amount you owe.
The rise of DeFi Stable coinsA comparison was done between six of the most popular DeFi protocols namely Compound, Maker, Uniswap, Curve, Aave and Balancer. It was found that USDC is the most popular stable coin in the DeFi space followed by DAI.
Tether, on the other hand, seems to have found its nice as the go-to stable coin for dollar-based crypto trades.
How does DeFi stable coins differ from dollar-based stable coins like Tether? Well, the U.S. Office of the Comptroller of the Currency (OCC) recently published regulatory guidelines for stable coins. The document stated that national banks may offer services to stable coin issuers. This has led many in the crypto space to associate Tether with centralized authorities and accompanying regulations. It is interesting to note that Tether, the company is currently being sued for allegedly not properly backing the currency with collateralized reserves.
USDC and DAI, on the other hand are associated with the DeFi space and are known as decentralized stable coins. Meaning, they are censorship-resistant and transparent.