In a bid to boost stablecoin adoption and compete with its rival Tether (USDT), Coinbase has increased the interest rate for USDC held on its exchange. The move comes as USDC has struggled to regain its market share following regulatory crackdowns and a banking crisis. With the new interest rate offering, Coinbase aims to attract more users and address industry challenges.
Coinbase recently announced that it is now offering up to a 5% interest rate on USDC, a significant increase from the previous 4% rate introduced earlier this year. This marks a 150% jump from the 2% reward rate on USDC as of June 9, demonstrating Coinbase’s aggressive approach to promoting stablecoin adoption. By offering higher interest rates, Coinbase aims to incentivize users to hold USDC and increase its market share.
The increase in USDC interest rates by Coinbase comes after the U.S. Securities and Exchange Commission (SEC) clarified that stablecoins like USDC are not considered unregistered securities offerings. This allowed Coinbase to boost its rewards program for USDC holders without violating regulatory requirements. However, the SEC deemed staking rewards for cryptocurrencies as unregistered securities offerings, which led to the blocking of Coinbase’s planned Lend program in 2021.
USDC has faced several regulatory challenges and market setbacks in recent times. Circle CEO, Jeremy Allaire, highlighted regulatory crackdowns in the U.S. as a significant factor in USDC’s declining market capitalization. Additionally, the stablecoin experienced difficulties when a substantial amount of its reserves became trapped during the U.S. banking crisis. As a result, USDC temporarily detached from its dollar peg, further impacting its market position.
One of the key goals for Coinbase is to rival Tether’s market dominance. Over the past 12 months, USDC has lagged significantly behind USDT in terms of market share. USDC’s market share hit a two-year low at the end of July, falling to 21.91% from a high of 33.27% before the banking crisis. Meanwhile, USDT’s market share increased from 49.48% to 68.87% during the same period.
To counter these challenges and regain lost market share, Coinbase has been strategic with its approach. By steadily increasing the interest rate for holding USDC, Coinbase aims to attract more users and encourage them to switch from USDT. The recent rise in USDC’s interest rate is a positive development indicating the stablecoin’s potential for growth and increased adoption.
While USDC has faced difficulties in the past, there are promising signs of momentum in recent weeks. Coinbase’s focus on offering attractive interest rates demonstrates its commitment to driving stablecoin adoption. By addressing regulatory concerns and providing competitive rewards for holding USDC, Coinbase aims to carve out a larger market share for the stablecoin.
It remains to be seen how successful Coinbase’s efforts will be, as competition in the stablecoin market continues to intensify. However, with its aggressive increments in interest rates, Coinbase is striving to position USDC as a viable alternative to USDT and expand its user base. As the crypto industry evolves, stablecoins like USDC play a crucial role in facilitating transactions and offering stability amidst market volatility.