February 2, 2023

US-based cryptocurrency exchange Coinbase has asked its customers to convert their Tether-issued USDT (USDT) stablecoin to USD Coin (USDC), a USD-pegged stablecoin issued by Circle and co-founded by Coinbase in 2018.

The cryptocurrency exchange suggested that USDC is a much safer alternative in the wake of the FTX collapse saga and has also waived all fees associated with converting USDT to USDC on its platform. The company said:

“We believe that USD Coin (USDC) is a trusted and reputable stablecoin, so we are making the transition easier: starting today, we are waiving fees for global retail customers to convert USDT to USDC.”

Stablecoins started as an onboarding tool for the crypto exchanges in the early days of crypto, but today they have become a major market player and source of liquidity. However, there has always been some kind of research into their reserves backing these stablecoins. A stablecoin must by definition be backed by 1 USD or equivalent.

Reserve debate intensified in the wake of FTX’s collapse as many companies exposed to the tainted exchange and its sister company Alameda Research filed for bankruptcy. There was another allegation that Binance CEO Changepeng Zhao traded barbs with former FTX CEO Sam Bankman-Fried, accusing him of untying USDT.

Tether posted its last quarterly statement on Nov. 10, just a day before the exchange went bankrupt. The report noted that as of September 30, 2022, 82% of Tether’s reserves are held in cash, cash equivalents, and other short-term deposits.

Coinbase also emphasized that USDC is 100% backed by “cash and short-dated US government bonds held in US-regulated financial institutions,” and that it is always 1:1 convertible to US dollars.

Related: Circle co-founder says converged dollar books on Binance would be good for USDC

Aside from the reserve audit debate, there is also a growing “stablecoin war” between crypto exchanges. Coinbase’s request to convert USDT to USDC comes just a few months after Binance, another global player, dropped support for USDC, leading to a $3 billion drop in the market cap of the Coinbase co-founder stablecoin.

The USDT issued by Tether is the largest stablecoin by market share with a market cap of $65 billion, USDC currently has a market cap of $42 billion but has quickly overtaken USDT’s market share. Binance’s stablecoin, BUSD, currently has a market cap of $22 billion.

Tether did not respond to Cointelegraph’s press requests for comment.