Investors flee USDC for USDT amid Tornado Cash crackdown

The situation around crypto mixing service Tornado Cash prompted investors to leave USDC for Tether’s USDT, as it is now perceived as a safer option due to the company operating outside of the US regulatory framework.

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Stablecoin issuer Circle recently came under fire for freezing $75,000 USDC in the account addresses sanctioned by the U.S. Treasury for their alleged link to Tornado Cash. The decentralized crypto mixer, which was used to launder funds coming from the Axie Infinity heist, was banned by the US on Tuesday, sparking a heated debate about the right to privacy and code falling under the definition of free speech.

According to Coinmarketcap, the total market capitalization of Tether’s USDT stablecoin grew by $1 billion to $67.4 billion in a week following the Treasury’s announcement on the sanctions against Tornado Cash. On the other hand, USDC’s market cap shrank by more than $500 million over the same period, suggesting that there might have been other fund inflows that contributed to Tether’s outstanding performance.

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Hong-Kong-based Tether has long been accused of the lack of transparency regarding the reserve assets backing USDT stablecoin. In May, when market panic reached a critical level, investors started selling USDT at a discount, triggering its brief depeg to $0.94. The released funds were then allocated to Circle’s USDC. But now the tables have turned, and investors deem Tether less risky as fears of global crypto enforcement mount.