In contrast to USDC’s growth, Tether faced regulatory scrutiny under Europe’s MiCA framework, which caused market cap fluctuations and debates over decentralization and financial censorship. Meanwhile, the Frax community integrated BlackRock's BUIDL fund as collateral for its frxUSD stablecoin.
On-chain Trends Point to Record Growth for USDC in 2025
The circulating supply of USD Coin (USDC), Circle’s United States dollar-backed stablecoin, experienced impressive supply growth by rising 80% from its 2023 lows thanks to an increase in on-chain activity. According to data from Blockworks Research, USDC’s circulating supply is nearing $44 billion, which is nearly double the low of under $24 billion that was recorded last year. Analysts suggest that this surge reflects heightened blockchain adoption and the diversification of USDC holdings across various networks.
Previously concentrated on Ethereum, which accounted for 85% of the stablecoin’s supply in 2023, USDC’s distribution has become much more balanced. Currently, around 65% of USDC is held on Ethereum, while 10% resides on Solana, and 15% is spread across Ethereum layer-2 networks like Base and Arbitrum, as well as Hyperliquid. This shift proves that there is growing traction on alternative layer-1 platforms like Solana, whose total value locked surged from $1.5 billion in January of 2023 to $8.5 billion by December, according to DeFiLlama.
This diversification aligns with trends like retail traders entering the crypto market through Solana due to the speculation around Solana-based meme coins and AI tokens. Grayscale shared in a December research report that this movement contributed to the stablecoin’s broader adoption and on-chain growth. Furthermore, stablecoins played a crucial role in boosting the decentralized finance (DeFi) sector by acting as key on-ramps for users exploring blockchain-based financial solutions.
The stablecoin market as a whole has also seen some major growth, with the combined market capitalizations of the top three stablecoins, Tether’s USDT, USDC, and Dai (DAI), increasing by over $25 billion after Donald Trump’s presidential election victory in the United States.
USDC market cap over the years (Source: CoinGecko)
Looking ahead, crypto researcher Steno Research predicts USDC’s circulating supply could more than double by the end of 2025 to potentially reach $100 billion. This projection depends on certain regulatory conditions, particularly in the European Union, where Tether’s USDT faces scrutiny. Analysts expect European residents to increasingly adopt USDC as an alternative, should Tether encounter more regulatory barriers.
The expanding adoption of stablecoins like USDC is particularly promising for DeFi, according to Citi’s analysis. Grayscale’s updated list of key tokens to watch in early 2025 proves this trend, as several DeFi applications on Solana, like Ethena, Jupiter, and Jito, received attention. These developments suggest a strong growth trajectory for USDC.
Tether Froze $126M in Financial Crimes Crackdown
In other stablecoin-related news, the T3 Financial Crimes Unit (FCU), which is a collaboration between Tether, the Tron network, and TRM Labs, froze $126 million in USDT since its launch in August of 2024. The CFU is tasked with combating illicit transactions, and works closely with global law enforcement agencies. This allowed it to monitor approximately $3 billion in USDT transactions in 2024 alone.
Breakdown of USDT frozen by T3 since its launch
Among the frozen funds, $56 million was tied to money laundering, and $36 million was linked to investment scams. While these actions aim to deter financial crimes and potentially return stolen assets to victims, they have caused many debates in the crypto community about privacy and decentralization. Critics argue that centralized control over cryptocurrencies can lead to financial censorship and undermine self-autonomy.
In 2022, Tether blacklisted more than $360 million in USDT, including $8.2 million frozen on the Ethereum network. In October of 2023, Tether also froze $873,000 in USDT that was allegedly connected to terrorist activities in Ukraine and Israel, bringing the total frozen amount to $835 million. That same year, Tether worked with the US Department of Justice in an investigation into a Southeast Asian human trafficking syndicate, freezing $225 million in stablecoins linked to scams like “pig butchering.”
In April of 2024, Tether extended its financial enforcement efforts by freezing Venezuelan assets to comply with US sanctions that were imposed on the country. Reports suggested that Venezuela’s state-owned oil company, PDVSA, used stablecoins to facilitate oil trading, bypassing US restrictions.
Stuart Hoegner Retires as Tether's Legal Chief
Stuart Hoegner, General Counsel for Tether and Bitfinex, decided to retire and will be succeeded by Michael Hilliard, who has worked alongside Hoegner for several years. In a statement on Jan. 2, Tether expressed confidence in Hilliard because of his strategic approach to legal and regulatory challenges and his deep understanding of the firms’ operations. The leadership change coincides with the implementation of Europe’s Markets in Crypto-Assets (MiCA) regulations, which took effect on Dec. 30. This left stablecoin issuers like Tether facing regulatory uncertainty.
While no European regulators explicitly declared Tether’s USDT non-compliant, its compliance under MiCA is still very unclear. Juan Ignacio Ibañez, a member of the Technical Committee of the MiCA Crypto Alliance, believes that the lack of explicit confirmation does not guarantee compliance.
The European Securities and Markets Authority (ESMA), which is a key supervisor of MiCA compliance, also refrained from clarifying USDT’s status by stating that it is working with market participants to address stablecoin-related issues. In December, US crypto exchange Coinbase delisted USDT in response to MiCA, though the stablecoin still trades across the EU as exchanges await further regulatory clarity.
USDT market cap over the past week (Source: CoinGecko)
Interestingly, USDT’s market cap experienced a large drop from $138.8 billion on Dec. 30 to $136.9 billion by Jan. 1, according to CoinGecko. This was the stablecoin’s largest market cap decline since the FTX collapse in November of 2022. Despite this decline, USDT maintains dominance above 65% in the $210 billion stablecoin market.
Frax Community Embraces BUIDL for Stablecoin Collateral
Meanwhile, the Frax community approved FIP-418, a proposal to use BlackRock's USD Institutional Digital Liquidity Fund (BUIDL) as collateral for the Frax-USD (frxUSD) stablecoin. The vote was passed unanimously after six days. With over $10.4 trillion in assets under management, BlackRock’s fund minimizes counterparty risk while offering financial rewards through collateralization.
Frax Finance founder Sam Kazemian described the collaboration as a bridge between traditional finance and decentralized systems. By combining blockchain transparency with BlackRock’s trusted treasury offerings, the move aligns with the growing trend to create stablecoins that generate yields for holders.
The proposal was initially presented by Securitize, the brokerage firm for the BUIDL fund, on Dec. 22. FrxUSD is pegged to the US dollar at a 1:1 ratio and backed by US government securities. It is part of a broader shift toward integrating tokenized real-world assets into decentralized finance. Ethena Labs also embraced BUIDL as collateral for its stablecoin, USDtb, which launched in December of 2024 with a market cap of close to $70 million. Similarly, Curve Finance announced in November that users could mint Elixir’s yield-bearing deUSD stablecoin using BUIDL as collateral.
The integration of BUIDL into frxUSD and other stablecoin projects is a major step toward combining the strengths of traditional finance with the innovation of decentralized platforms, which could be the start of a new era for stablecoin utility and adoption.
