The Declining Dominance of Tether (USDT) and Circle (USDC) in the Stablecoin Market

The stablecoin ecosystem is undergoing a significant transformation as Tether (USDT) and Circle (USDC), historically the dominant players in the sector, are witnessing a gradual erosion of their market share. While these two stablecoins continue to lead in terms of net inflows and market capitalization, their firm grip on the industry is slipping. Emerging competitors and structural shifts are reshaping the landscape, signaling the end of their duopoly.

Declining Market Share: The Numbers Behind the Shift

Data from DeFiLlama, referenced by Cointelegraph on October 2, 2024, reveals a combined market share decline of more than 5% for USDT and USDC over the past year. Despite the growth in their individual market capitalizations, new entrants to the stablecoin space are steadily chipping away at their dominance.

Nick Carter, partner at Castle Island Ventures and a renowned voice in cryptocurrency analytics, summed up the shift succinctly on X (formerly Twitter): "The stablecoin duopoly is ending." Carter emphasized that new players, particularly issuers of interest-bearing stablecoins and even traditional banks, are stepping into the arena and creating formidable competition.

USDT and USDC Market Share Contraction Post-2024 Peak

To understand the scale of this decline, it’s essential to look at where USDT and USDC stood at their peak. In March 2024, the duo accounted for a combined 91.6% of the stablecoin market, which at the time was valued at approximately $140 billion. Tether alone held a market capitalization of $99 billion, while USDC commanded $29 billion.

Fast forward to late 2024, and their combined market share has fallen to 83.6%. This represents a 5.4 percentage-point drop since October 2, 2024, and a 3.4-point decline since the start of the year. The reasons for this downturn include expanding competition, the emergence of interest-bearing stablecoins, and regulatory shifts brought about by recent legislative changes like the GENIUS Act.

Ethena’s USDe: A Rising Star of 2024

One standout player in the evolving stablecoin market is Ethena’s USDe. Touted by Nick Carter as "this year’s greatest success," USDe has carved out a niche by leveraging profits from crypto basis trades and redistributing them to its holders. This innovative approach has propelled USDe to an issuance volume of $14.7 billion, solidifying its position as a major contender.

Ethena isn’t the only new entrant making waves. Other challengers include Sky’s USDS, PayPal’s PYUSD, WorldLiberty’s USD1, Ondo’s USDY, Paxos’s USDG, and Agora’s AUSD. Many of these stablecoins offer yield-generating features, which are proving increasingly attractive to investors seeking more utility than the traditional store-of-value model provided by USDT and USDC.

Banks Entering the Stablecoin Arena

A critical component of this shifting narrative is the role of banks and financial institutions stepping into the stablecoin landscape. Regulatory changes, particularly those encouraging safer and more compliant models, are creating opportunities for banks to issue their own stablecoins. Carter noted that despite apprehensions over deposit withdrawals, banks are well-positioned to compete. He suggests that a consortium model—a collaboration among multiple banks—may be more effective in challenging Tether’s widespread distribution network than individual issuances.

European banks are already leading the charge. On September 25, a coalition of prominent institutions, including ING and UniCredit, announced a joint venture to issue euro-backed stablecoins. These new offerings are designed to meet the stringent regulatory requirements outlined in the European Union’s Markets in Crypto Assets (MiCA) framework and are slated for release by the second half of 2026. This proactive engagement by major banks underscores their intention to capitalize on the stablecoin market's growing opportunities.

The Future of Stablecoins: A Competitive Landscape

The decline in USDT and USDC’s dominance marks a pivotal moment in the stablecoin market’s evolution. As new players with innovative features and compliance-driven strategies enter the field, the days of an unchallenged duopoly appear to be over. Interest-bearing stablecoins are attracting more capital, while banks leverage their trusted infrastructure and regulatory frameworks to bridge the gap between traditional finance (TradFi) and decentralized finance (DeFi).

The next few years will determine whether legacy stablecoins can adapt to an increasingly competitive environment or if they will be outpaced by aggressive newcomers and institutional offerings. One thing is clear: the market is transforming, and the emergence of diverse, yield-generating, and compliant stablecoins is reshaping the trajectory of the industry.