Coinbase has asked its customers to convert their Tether-issued USDT stablecoin to USD Coin, a USD-pegged stablecoin issued by Circle and co-founded by Coinbase in 2018.
The cryptocurrency exchange suggested that USDC is a much more secure alternative in the wake of the FTX collapse saga and has also exempted any fee on the conversion of USDT to USDC on its platform.
Stablecoins started out as an onboarding tool for the crypto exchanges in the early days of crypto, but today they have become a key market player and liquidity source. However, there has always been some form of scrutiny around their reserves backing these stablecoins. A stablecoin, by definition, must be backed by 1 USD or equivalent.
The reserve debate intensified in the aftermath of FTX collapse as many firms with exposure to the tainted exchange and its sister company Alameda Research went bankrupt. There was another allegation about Binance CEO trading barbs with former FTX CEO and accusing him of trying to depeg USDT.
Apart from the debate over reserve audits, there is a growing stablecoin war among crypto exchanges as well. Coinbase’s request to convert USDT to USDC comes just a couple of months after Binance, another global player, cut support for USDC leading to a drop of $3 billion in the market cap of the Coinbase co-founded stablecoin.
