On September 10th, the largest U.S. cryptocurrency exchange, Coinbase, unexpectedly increased its interest rate to 5% for all USDC held on the platform. According to historical data from the website, this figure reflects an impressive 150% increase from the 2% reward rate that was in effect for USDC since June 9th and the 4% rate introduced earlier in the year.
It’s worth noting that the 2% reward rate had been increased to 4% on June 15th, after the SEC stated in a Coinbase lawsuit filing that they do not consider USDC – or any stablecoin – as unregistered securities. Therefore, any rewards offered for holding stablecoin don’t violate existing regulations.
However, the regulatory authority views speculative rewards for cryptocurrencies as unregistered securities, which also led to the halt of Coinbase’s Lend program in 2021 due to regulatory concerns.
The current USDC reward mechanism is directly sponsored by Coinbase and has managed to avoid such controversies because it differs from other controversial programs like Lend – which aimed to allow users to borrow USDC to create rewards.
According to research, Coinbase’s significant increase in the USDC reward rate highlights its intention to promote the use of more stablecoins, which have lagged considerably behind Tether’s USDT in market share over the past 12 months.
Jeremy Allaire, the CEO of Circle, believes that regulatory crackdowns in the U.S. have been a significant factor in the declining market capitalization of USDC.
This stablecoin also faced challenges when its $3.3 billion reserve was frozen at Silicon Valley Bank during the U.S. banking crisis, temporarily detaching it from the USD.
By the end of July 2023, USDC’s market share had reached its lowest point in two years, dropping to 21.91% from 33.27% before the crisis. Meanwhile, USDT had increased from 49.48% to 68.87% market share over the same period.
Therefore, it can be seen that this stablecoin has struggled for some time to regain lost market share to USDT since the beginning of the year and has started to show signs of growth in recent weeks.