(Bloomberg) -- The regulatory crackdown on cryptocurrencies is proving a boon for a token that’s located outside the US and being scrutinized over the transparency of its reserves.

Tether Holdings Ltd’s USDT — the world’s largest stablecoin — increased its market share by about $1 billion in the past 24 hours alone, as some traders move their holdings out of rivals following a series of enforcement drives by financial watchdogs in the US.

Since the start of February, $2.5 billion poured into USDT, taking its total supply from $67.8 billion to $69.4 billion on Tuesday, according to data website DeFiLama. In the same period, Circle’s USDC saw outflows of $1.45 billion and Paxos’s BUSD lost $710 million. Both operate under the supervision of US authorities.

The new inflows into USDT pushed its market share to 51%, according to DeFiLama.  

A fresh bout of regulatory activity is spooking investors. On Monday, the New York Department of Financial Services told rival stablecoin issuer Paxos to stop minting new Binance-branded BUSD tokens due to “unresolved issues” in overseeing its relationship with Binance. 

The U.S. Securities and Exchange Commission may seek to label BUSD an unregistered security, Paxos said, adding that it “categorically disagrees” and will litigate “vigorously” if necessary. 

The turbulence around BUSD follows an announcement last week that San Francisco-based exchange Kraken will pay $30 million to settle SEC allegations that it broke the agency’s rules with its staking product. 

US Crackdown Seeks to Push Crypto Back to Fringe of Finance (1)

The message for traders is clear — the crackdown is gathering pace, and that’s sending some of the larger firms to seek havens offshore, out of the reach of US regulators. 

Nagendra Bharatula’s G20 Group is contributing to the shift, and was one of the companies selling their USDC in favor of cash dollars and USDT.

“Capital is rotating out of USDC and into Tether amidst these regulatory concerns,” the senior portfolio manager and founder of the Zug-based fiat and digital asset trading and technology company said in an interview.

In the last 24 hours alone, USDT’s market capitalization grew by $1 billion, the DeFiLama data show. USDC and BUSD both shrank, shedding $280 million and $690 million, respectively. 

A spokesperson for Circle declined to comment. Tether did not respond to a request for comment. A Paxos spokesperson referred to its recent statements regarding developments around BUSD.

What are Stablecoins? 

  • Digital tokens that aim to keep a one-to-one value with a less volatile asset like the dollar, typically by maintaining large reserves as segregated collateral
  • They’re commonly used by crypto traders to move in and out of positions, making them the most traded digital assets by volume.
  • Stablecoins have faced increased regulatory scrutiny following the $40 billion collapse of TerraUSD, which relied on algorithmic incentives with its sister token LUNA to maintain its value.

The kind of enforcement US regulators are pursuing is often criticized for creating room for regulatory arbitrage, by pushing activities into other jurisdictions, according to Clara Medalie, director of research at data firm Kaiko.

“Essentially, now we’re left with Tether,” she told Bloomberg TV. “It’s never good to have all risk concentrated in a single, centralized entity, but I’m afraid that with Tether we sort of have this now.”   

--With assistance from Emily Nicolle.

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