You might glance at Tether and Circle, see their massive market caps, and think they are unchallengeable. For a long time, that thought held true. These two giants controlled over 80% of the global stablecoin value by market cap, even as recently as October 2025. Most other crypto-native challengers barely made a dent, despite offering interesting ideas.
- The dominance of Tether and Circle in the stablecoin market is being challenged by new entrants and shifting regulatory landscapes. These new players are offering innovative yield-earning opportunities and deeper integrations with exchanges.
- Regulatory developments like MiCA in the EU and the potential GENIUS Act in the US are creating hurdles for existing stablecoins, forcing them to adapt or risk losing market share. Traditional financial institutions and fintech giants are also preparing to enter the stablecoin market, further intensifying competition.
- The stablecoin market is moving towards fragmentation and innovation, with success likely depending on adaptability rather than just incumbency. Tether and Circle are actively responding to these changes through strategic partnerships and product development, but their future dominance remains uncertain.
Their dominance wasn’t accidental. A market focused on crypto, a general lack of clear rules, being first to market, and strong connections with on- and off-ramps helped them build huge value. It felt like a two-horse race, and these horses were galloping far ahead of the pack.
The Shifting Sands of Stablecoin Power
But the ground beneath them is starting to shift. We’ve seen a period some call “Stablecoin Summer.” This term describes a boom in demand, clearer rules, and many new players joining the market. This new environment has started to expose some real challenges for what many considered the default stablecoins.
Tether and Circle have certainly felt the heat. They’ve responded with a flurry of activity. We’ve seen well-connected executive hires and regulated launches in Europe (EURC) and the US (USA₮). These moves show they understand the need to change and adapt. They want to maintain their lead, or at least keep growing. But the big question remains: will these efforts be enough?
Historically, stablecoin usage found its home in decentralized finance (DeFi) applications. Think trading, lending, staking, yield farming (earning rewards by locking up crypto), and liquidity provisioning (providing tokens for trading pools). Beyond DeFi, there was strong demand for cross-border payments, savings, and simply getting access to US dollars in places with shaky local currencies.
Large centralized exchanges played a huge role in their success. They acted as kingmakers, providing the vital on- and off-ramps that brought global demand into and out of the system. Without Coinbase, for example, USDC (which launched four years after USDT) would likely not be where it is today. Coinbase even takes a 50% share of Circle’s USDC reserve revenue. Tether’s relationship with Bitfinex and Binance also shows this powerful dynamic.
New Players, New Rules
Now, a new wave of entrants is showing up. Names like USDG from Paxos and USDe from Ethena are making waves. They offer users easier ways to earn yields on their holdings. In a product category that often feels quite similar, this ability to earn a return is a major draw for users. It’s a bit like choosing between two identical coffee shops, but one offers loyalty points that actually mean something.
Take Ethena’s USDe, for instance. Recent announcements show integrations with Bybit and Binance. These moves make it simpler for users to earn rewards. They also offer deeper product integration, allowing users to earn yield on funds parked on the platform or held as collateral. USDG, part of the Global Dollar Network, has done much the same thing.
Then there’s Hyperliquid. This decentralized exchange operates on its own layer-1 blockchain. They recently launched their own native, compliant stablecoin, USDH, in partnership with Native Markets. Before this, Hyperliquid saw incredible volume growth. They jumped to over $330 billion in spot and perpetual trading volume in July 2025, briefly surpassing Robinhood. They also hold a significant $5.97 billion of USDC deposits on their platform. That’s nearly 10% of the total circulating supply.
This move to their own stablecoin was a clear signal. Major ecosystem players want a piece of the action. Without their own stablecoin, these platforms receive none of the interest revenue Circle generates from USDC reserves. In Hyperliquid’s case, assuming a conservative 4% return, this opportunity could represent up to $240 million in annual revenue. Imagine converting all that USDC on their platform into their own USDH.
Circle, in a clear defensive move, responded quickly. They launched their own native version of USDC on HyperEVM. This move aims to deepen USDC integration into Hyperliquid’s ecosystem. It allows seamless transfers across over a dozen networks using Circle’s Cross-Chain Transfer Protocol. Alongside this, they announced an investment, purchasing $HYPE tokens, the native utility and governance token of the Hyperliquid ecosystem. It’s a classic play: if you can’t beat ’em, join ’em, and maybe buy a piece of their pie.
Ethena’s recent USDe announcement with Binance also challenges Tether. Following Binance listing USDe, the exchange added USDe trading pairs. It also integrated with Binance’s Earn program. Like USDC and Coinbase, Binance users in certain jurisdictions can now earn rewards on the stablecoins they hold on the platform. This includes within portfolio margin on futures and perpetuals trading. This move, combined with an attractive incentive offer of 12% APR for a limited time, saw USDe on the platform skyrocket to over $2 billion. At the same time, USDe’s market cap crossed $14 billion, up from $6 billion in January of this year.
This growth follows a string of initiatives from the third largest stablecoin by market cap. USDe usage even outpaced USDC on Bybit after a similar integration announcement. These examples are not isolated incidents. Other players, like USDG from Paxos, are also working to integrate with key exchanges. Their goal is the same: earn market share from Tether and Circle. They do this by breaking down the value chain and distributing more of the interest revenue earned on reserves.
The numbers tell a clear story. On January 1, 2025, USDT and USDC together accounted for 88% of the total stablecoin market cap, valued at $181 billion. Ten months later, the overall market had surged by more than 50%, from $205 billion to $313 billion as of October 9. However, USDT and USDC’s combined market share declined to roughly 82%. That drop might seem small, but it’s a clear signal. Competition is heating up. New entrants are starting to chip away at the dominance of the two incumbents.
Regulatory Winds and Traditional Giants
The two incumbents face challenges not just from industry players. Recent regulatory updates have also brought mounting pressure. The EU recently rolled out MiCA, their detailed crypto framework. It regulates crypto assets, their providers, and other ecosystem participants. Tether made a definitive announcement: they would not comply with the regulation. Their CEO called it “too restrictive and dangerous.” As a result, USDT was delisted from centralized exchanges providing vital on- and off-ramps in the EU.
Circle, though in a stronger position thanks to its MiCA compliance, was not left untouched. Under the regulation, USDC and other stablecoins are classified as e-money tokens (EMTs). This means they cannot legally pay yield to holders in the EU. This could impact their value to users on venues that previously offered rewards. It generally diminishes the value of stablecoins compared to other traditional ways of holding cash.
Luckily for Tether, Europe makes up a relatively small share of their total market. The majority of USDT’s volume comes from Asia and other non-Western markets. Circle also saw a somewhat muted effect. All stablecoins fall under the same requirements. Unless held on-chain, no user would be able to receive reward payments in the EU.
The GENIUS Act in the US is likely to move the market in much the same way. As it stands, Tether’s USDT is non-compliant. It will likely face the same delistings that marked its EU centralized exit. Stablecoins will also not be able to directly pay holders interest. While currently exempt, banks are lobbying for rewards programs to be included in the ban too. No surprise there. They see the potential for deposit flight, given the significantly higher returns offered through these stablecoin programs.
Tether has responded by launching USA₮. This is their new US-compliant offering. It will be issued by Anchorage Digital and led by Bo Hines, a former White House crypto sherpa, as CEO. This was a measured move. Tether opted to maintain support for the highly profitable, offshore structured, non-US and -EU compliant USDT. They added USA₮ as the complementary regulated product. It’s like having two different flavors of soda, one for the local market, one for export.
While rewards programs remain uncertain with banks lobbying against them, Circle and other issuers in the US face another threat. These same banks and other institutions might enter the race in force after the GENIUS Act. Institutions like Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo are all actively planning or exploring stablecoin initiatives. Bank of America and Citigroup have even confirmed plans to launch their own U.S. dollar-backed stablecoins. Fintech giants are also getting in on the action. PayPal, Revolut, and Robinhood are all set to launch their own tokens. The stablecoin market is about to get very crowded.
The dominance of Tether and Circle, once seen as unshakable, now faces its most formidable test yet. What was once a two-horse race is quickly becoming a crowded, complex ecosystem of challengers. Each one uses new technologies, integrations, and regulatory openings to win market share. The rise of natively integrated stablecoins like USDe and USDH, coupled with increasing pressure from regulators and the looming entry of banking and fintech giants, suggests a clear path ahead. The next phase of the stablecoin market will be defined by fragmentation, innovation, and a realignment of power.
Tether and Circle are not blind to these shifting tides. Their strategic partnerships, regulatory pivots, and technical integrations show a willingness to adapt. But whether this will be enough remains to be seen. Their future will depend not just on scale and incumbency. It will depend on how effectively they evolve to meet user demands in an increasingly competitive and regulated environment.
As the market matures, the very definition of a “dominant” stablecoin may change. In this new landscape, success might hinge less on being first, and more on being the most adaptable. It’s a fascinating time to watch.
