Haciyev Reşit 
The balance within the stablecoin market has begun to shift in the crypto space. The supply of Tether (USDT) declined by $1.5 billion in February, marking the largest monthly contraction since the FTX collapse. However, the key point is not capital leaving the market, but rather capital rotating between stablecoins. While USDT supply decreased, its main competitor USD Coin (USDC) recorded significant growth. This development signals the beginning of a new competitive phase in the stablecoin market.
USDT Supply Falls by $1.5 Billion
According to Bloomberg and Artemis Analytics data, Tether’s circulating USDT supply dropped by approximately $1.5 billion in February. As of February 19, total supply declined to $183.7 billion, a noticeable pullback from the early January peak of $187 billion. This marks the largest monthly contraction in USDT supply since the December 2022 FTX crisis.
Despite this decline, the overall stablecoin market did not shrink. On the contrary, total stablecoin market capitalization rose from $302.9 billion to $304.6 billion in February. This indicates that capital did not exit the crypto market but instead rotated between stablecoins. During the same period, USDC supply increased by nearly 5%, reaching $75.7 billion—highlighting that investors shifted from USDT to alternative stablecoins.
Reasons Behind the Decline in USDT Supply
According to analysts, three main factors contributed to the pressure on Tether:
- Market-wide selling pressure: A broad crypto sell-off that began in October erased nearly $2 trillion from total market value, weakening overall demand for stablecoin liquidity.
- Regulatory pressures: The European Union’s MiCA regulations are forcing exchanges to restrict non-compliant stablecoins, placing additional pressure on assets like USDT that are often at the center of regulatory debates.
- Falling trading and leverage demand: Bitcoin’s price pullback and heightened volatility have reduced leveraged trading volumes, significantly lowering demand for USDT.
USDC Gains Strength as Competition Intensifies
Competition in the stablecoin market is becoming increasingly visible. In 2025, total stablecoin transaction volume reached $33 trillion, with $18.3 trillion attributed to USDC and $13.3 trillion to USDT. Although USDT still leads in market capitalization, falling behind USDC in transaction volume suggests that institutional investors are beginning to prefer more regulated and transparent stablecoins. Factors such as regulatory compliance, reserve transparency, and integration with the U.S. financial system have strengthened USDC’s position among institutional players. As regulatory clarity improves, major financial institutions and payment companies are increasingly favoring compliant stablecoins, gradually shifting the balance of power in the market.
Political and institutional support for U.S.-based stablecoin projects has also accelerated competition. For instance, USD1, a stablecoin issued by World Liberty Financial and reportedly backed by the Trump family, is introducing new liquidity and alternative options to the market. The growing number of choices suggests that the stablecoin sector may evolve into a more fragmented and competitive structure in the near future.
Should USDT Holders Be Concerned?
The February decline represents only about 0.8% of total USDT supply. Compared to the consecutive contractions of 13%, 9%, and 6% seen in 2022, this drop remains relatively limited. USDT’s $1 peg continues to hold steady, and no major issues have emerged regarding its reserves. However, the stablecoin ecosystem is evolving rapidly. Once the undisputed leader, Tether is now operating in a more challenging environment due to regulatory pressures and rising competition. The recent decline in USDT supply reflects capital rotation rather than capital outflow from the market. As investors move from Tether toward alternatives like USDC, the key question remains whether this shift is a temporary liquidity adjustment or the beginning of a more permanent structural transformation. The answer will depend on regulatory developments, institutional demand, and the trajectory of competition within the stablecoin market.
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