Tether Touts Liquidity Edge Over USDC as DeFi Hack Lifts USDT to Record Market Cap
Tether's lead over Circle's USDC is widening as a fresh wave of DeFi exploits rattles markets, CoinDesk reported.
Earlier this month, an exploit tied to a vulnerability on Solana-based Drift Protocol led to losses estimated at up to $285 million. The incident, reported to be among the largest DeFi hacks this year and linked to North Korea, coincided with a surge in demand for USDT. On Tuesday, USDT's market capitalization rose 2.1% to nearly $188 billion, setting a new all-time high, according to CoinGecko.
USDC expanded more modestly. Its total value increased 1.4% to $78.25 billion.
In a Tuesday note, Compass Point analysts said DeFi outflows could weigh on USDC's on-chain circulation, reducing the interest income Coinbase and Circle earn from the stablecoin's U.S. Treasury reserves. "DeFi outflows could lead users to sell USDC or hold USDC on exchanges with yield-sharing mechanisms. Either outcome would put pressure on the gross profits of CRCL and COIN by reducing interest income or profit margins," they wrote.
The analysts pointed to $1.5 billion in stablecoin withdrawals from lending protocols. They also cited activity following the attack in which funds moved via Kelp DAO and were used to borrow on Aave.
Jake Kennis, senior research analyst at blockchain analytics firm Nansen, said USDT may benefit from stronger crisis liquidity as risk sentiment deteriorates. He attributed the gap to deeper USDT liquidity on centralized exchanges, offering a more direct "safe-haven" route during DeFi stress. He added that USDT's broader exchange integration and larger market share can amplify network effects when protocol risk rises.
The Drift exploit has also intensified scrutiny of Circle's security and response processes. After attackers used Circle's infrastructure to move millions of dollars in crypto across networks, the company faced a class-action lawsuit last week alleging it failed to freeze funds. Circle has defended its actions, with CEO Jeremy Allaire saying unilateral freezes create "significant moral dilemmas."
Drift also indicated it would stop supporting the stablecoin after receiving a commitment from Tether to restore funds.
Compass Point set a $77 price target on Circle's stock and reiterated a "Sell" rating. The issuer's shares traded below $98 on Tuesday, down 8% from the prior day, according to Yahoo Finance.
Circle and Tether were contacted for comment, according to reports.
