In the volatile world of cryptocurrency, the supremacy of Tether’s USDT has often been unchallenged. Yet, February witnessed a notable seismic shift as USDT’s circulating supply dropped by $1.5 billion, the largest monthly contraction since the FTX collapse in December 2022. This unexpected turn of events has stirred both intrigue and concern among crypto enthusiasts and market participants.
Unpacking the Tether Supply Decline
Several factors are converging to challenge Tether’s dominance. A broad crypto selloff that began in October has wiped out $2 trillion in market value, eroding the demand for stablecoin liquidity. Simultaneously, Europe’s stringent MiCA regulations have been pressuring exchanges to limit transactions involving non-compliant stablecoins. Additionally, Bitcoin’s downturn has led to reduced leverage and trading activity, further diminishing USDT demand.
Despite this, the overall stablecoin market has actually grown to $304.6 billion in February from $302.9 billion a month prior. This suggests the capital isn’t exiting the stablecoin ecosystem—it’s just shifting within it. Circle’s USDC, in particular, has emerged as a significant benefactor, with its supply climbing nearly 5% to $75.7 billion during the same period.
USDC’s Ascendancy Amidst Tether’s Retreat
2025 was a landmark year for stablecoin transaction volumes, reaching $33 trillion. Interestingly, USDC accounted for the lion’s share of $18.3 trillion, surpassing USDT’s $13.3 trillion despite a smaller market cap. This marks a significant shift as USDC now processes more volume than its larger counterpart.
Contributing to this shift is the international support for regulated stablecoins. The launch of World Liberty Financial’s USD1 stablecoin in March 2025, a venture backed by the Trump family, has also added new competition in the mix, showcasing a rapidly evolving landscape.
Challenges and Considerations for USDT Holders
The February decline in USDT is a mere 0.8% dip, modest when compared to its historical contractions of up to 13% in 2022. Tether’s $1 peg remains stable, and its reserves continue to appear robust. However, the context surrounding Tether’s challenge is vital to understand. Regulatory developments like MiCA enforcement could influence the stablecoin’s future significantly.
As Tether’s dominance is being tested, the market’s response will determine whether this is a fleeting liquidity adjustment or signals a deeper structural shift. It will be critical to watch whether institutional capital continues to pivot towards regulated alternatives, ultimately shaping the future landscape of stablecoins.
