USDT–USDC Duopoly Erodes as Yield Stablecoins and Banks Gain Ground

Tether’s USDt and Circle’s USDC, the two dominant dollar-pegged stablecoins by market capitalization, have been ceding ground over the past year, pointing to a notable reshaping of the stablecoin market. Even as both tokens have grown in absolute market value, their combined share of the overall sector has slipped by more than 5% since Oct. 2, 2024, according to aggregated figures from DefiLlama and CoinGecko.

Industry analyst and Castle Island Ventures partner Nic Carter highlighted the trend on X in a post titled “The stablecoin duopoly is ending,” arguing that a new wave of issuers and changing regulation are eroding the pair’s longstanding dominance. In Carter’s view, upstart competitors—particularly those offering yield-bearing designs—are poised to undercut established players, while banks and large financial institutions are preparing to enter with their own alternatives.

USDT and USDC hit a high-water mark for market share in March 2024, when the overall stablecoin market hovered near $140 billion. At that point, Tether’s market cap was roughly $99 billion and USDC’s around $29 billion, giving the two a combined share of 91.6% of all stablecoins outstanding. Since then, their grip has loosened. Carter notes the joint share has fallen to about 86% from that March peak, and data at the time of writing shows a further slide to 83.6%, marking a 5.4% drop since Oct. 2, 2024, and a 3.4% decline year to date.

Carter attributes the shift to three forces: heightened assertiveness by intermediaries that distribute and integrate stablecoins, intensifying competition around yields offered to holders, and a new regulatory environment he describes as “post-GENIUS,” referring to the U.S. GENIUS Act and associated scrutiny of yield-bearing designs. He believes these pressures will continue to dilute the combined dominance of USDT and USDC, even if their individual market caps keep climbing alongside broader crypto adoption.

The analyst singled out a range of rivals fueling the change in market structure. He called attention to Sky’s USDS, Ethena’s USDe, PayPal’s PYUSD, and World Liberty’s USD1, while also urging watchers to monitor emerging contenders such as Ondo’s USDY, Paxos’ USDG, and Agora’s AUSD. A common thread among many of these newer tokens is their focus on passing through returns—whether from traditional money market instruments, crypto-native strategies, or structured products—to token holders who park their funds in the stablecoin.

Ethena’s USDe has become the standout story of 2024, Carter said, growing its supply to approximately $14.7 billion by employing a basis-trade strategy in crypto markets to generate yield and then distributing that income to users. Despite increased regulatory pressure on such approaches under the GENIUS framework, he expects the appetite for yield-bearing stablecoins to remain strong. Startups can move faster, tailor products to specific user bases, and offer more aggressive rates, Carter argued, creating a “race to the bottom—or realistically, the top—on yield.” He added that even incumbent issuers are adapting to the new landscape, pointing to efforts by Circle, in partnership with Coinbase, to introduce yield options for USDC holders.

Beyond yield dynamics, Carter emphasized that regulatory shifts are opening doors for banks and other traditional financial institutions to issue their own stablecoins. While concerns persist about bank deposit flight or operational risk, he contends that financial institutions will eventually step in given the strategic importance of tokenized cash for payments, settlement, and on-chain finance. He pointed to reported collaborations between major banks like JPMorgan and Citigroup as evidence that consortia-based models may be the most viable way forward. According to Carter, no single bank can match Tether’s global distribution on its own; pooled efforts, shared infrastructure, and mutual liquidity support could present a more credible challenge.

Europe is already seeing the contours of this trend. Dutch lender ING, Italy’s UniCredit, and seven additional banks disclosed in late September a joint venture to develop a euro-denominated stablecoin designed to comply with the European Union’s Markets in Crypto-Assets Regulation (MiCA). If timelines hold, the consortium expects to issue the token in the second half of 2026. Such initiatives suggest that, once regulatory pathways are clearer, bank-issued stablecoins could scale quickly by leveraging existing payment rails, corporate relationships, and retail networks.

The shifting balance does not imply that USDT or USDC are shrinking in absolute terms. On the contrary, both have continued to add to their market caps as stablecoin usage expands across centralized exchanges, on-chain trading venues, and cross-border transactions. What is changing is the range and type of competitors: specialized issuers courting users with higher yields, fintech names with powerful consumer brands, tokenized fund providers bridging TradFi and DeFi, and bank consortia intent on plugging stablecoins into established financial plumbing.

If these entrants sustain momentum, the stablecoin sector could become far more segmented. Some tokens will prioritize regulatory clarity and institutional integration; others will compete on capital efficiency, programmability, or rewards. Yield-bearing designs, despite ongoing scrutiny, appear poised to keep drawing capital so long as they can demonstrate robust risk management and transparency. Meanwhile, non-yielding, fiat-redeemable stablecoins may emphasize reliability, liquidity, and compliance in jurisdictions that favor conservative structures.

Carter’s conclusion is that the long-standing USDT–USDC duopoly is increasingly difficult to maintain in a market that rewards specialization and distribution strength. With intermediaries asserting more control over what assets they integrate, with users gravitating to tokens that share more of the underlying return, and with banks preparing to launch their own compliant products, the combined market share of the two leaders looks likely to keep drifting lower—even if their absolute sizes continue to grow with the broader crypto economy.

In short, a stablecoin market once dominated by two names is fragmenting as new business models, regulatory clarity, and institutional involvement reshape the field. Whether the next phase is led by yield-focused startups, fintech platforms, or bank-backed consortia, the result is the same: more choice for users and a more competitive landscape for issuers that, according to current data, is already chipping away at the once overwhelming market share of USDT and USDC.