Why USDT Still Dominates Despite Losing the US and EU

Since 2021, US regulators have fined Tether tens of millions of dollars through settlements with the NYAG and CFTC, forcing the company to stop transacting with New York users. Binance and Kraken then removed USDT from spot trading for EEA users under MiCA from March 31, 2025. On July 1, 2026, MiCA's transitional (grandfathering) period ended across all 27 EU member states. The deadline was firm: any entity offering crypto-asset services to EU customers without a full MiCA license is now breaching EU law. Tether has not pursued an EMT license under MiCA, leaving USDT absent from most licensed centralized exchanges (CEXs) in Europe.

Even so, USDT still controlled 59.07% of the global stablecoin market cap as of July 8, 2026, making it 2.49 times larger than its closest rival, USDC. The apparent contradiction points to two distinct layers within the same market. One is the regulated distribution layer, or regulated shelf space, serving mainly businesses, exchanges, and financial institutions (B2B). The other is the liquidity and real-demand layer, driven mainly by retail users, traders, and DeFi activity (B2C).

Using public data from DefiLlama, exchanges, regulators, and Tether, this article separates those layers to answer three questions: what is USDT actually losing, what does it still control, and what could change the balance from here?

What Is USDT Losing in the US and EU?

The US: Pushed Out of Compliant Channels, Not Gone Entirely

Three legal milestones have shaped USDT's position in the US:

• NYAG settlement (2021): Bitfinex and Tether had to stop all transactions with New York users, pay $18.5 million, and meet stricter disclosure obligations for their backing assets.
• CFTC action (2021): The case resulted in $42.5 million in total fines, including $41 million paid by Tether. The CFTC alleged Tether had presented USDT as 100% backed by fiat even though the company held sufficient fiat reserves on only 27.6% of the days examined during a 26-month sample covering 2016 to 2018.
• The GENIUS Act: This framework adds conditions for foreign payment stablecoin issuers and platforms seeking to offer foreign stablecoins in the US. Its focus includes compliance with lawful orders and related reciprocal arrangements. Calling USDT "banned" would overstate the case. More precisely, a foreign issuer model such as Tether's faces higher barriers when expanding through compliant US channels.

The US doesn't prohibit every form of USDT use. Still, the regulatory direction places more conditions on foreign issuers, especially stablecoins relying on attestations rather than the transparency and oversight standards applied to domestic issuers such as Circle.

Important caveat: "Losing the US" here means losing or weakening access to regulated shelf space, including officially regulated trading and listing channels. It doesn't mean US users can no longer hold USDT through self-custody or venues operating outside this framework.

The EU: MiCA Builds a Compliant Lane and Pushes USDT Off the Spot Shelf

Europe's shift has been clearer and more systematic:

• ESMA (January 2025) instructed national competent authorities (NCAs) to ensure crypto-asset service providers (CASPs) complied with the rules for non-MiCA-compliant ART/EMT tokens as soon as possible, with the end of Q1 2025 as the final deadline.
• Binance announced EEA users could trade MiCA non-compliant stablecoins, including USDT, on spot markets only through March 31, 2025. Afterward, users could still custody, deposit, and withdraw those assets or use Convert to move into compliant alternatives such as USDC or EURI.
• Kraken also classified USDT among the stablecoins no longer available for trading by EEA customers. Those assets now support deposit and withdrawal only.
• Circle confirmed it holds an EMI license from France's ACPR and issues both USDC and EURC in full compliance with MiCA.
• July 1, 2026: ESMA confirmed the end of MiCA's transitional (grandfathering) period across all 27 EU member states, with no further extensions. This marked the final hard deadline. Before then, member states followed different transition schedules. The Netherlands required compliance from July 2025, while Germany and Ireland required it from late 2025. Since July 1, 2026, every CASP serving EU customers must hold a full MiCA license. Tether has not pursued an EMT license under MiCA, so most licensed CEXs in the EU have removed USDT. Among large stablecoins by market cap, USDC stands out for achieving MiCA compliance. Circle also issues EURC under the framework, though EURC shouldn't be described as a top-10 stablecoin globally.

The EU hasn't erased USDT from user wallets. It has removed USDT from the compliant spot channel and shifted the official distribution advantage toward USDC and EURC.

Both regions follow the same basic logic: tighten control over issuers and official distribution without blocking users from self-custody or trading USDT on venues beyond direct regulatory reach.

Why Does USDT Still Dominate Stablecoins?

USDT's lead rests on years of accumulated trust, reach across smaller markets USDC has yet to penetrate, continued spending on distribution, a flexible product structure, and a distinctly web3 culture. Together, these advantages help explain why it remains dominant.

It Is the Default Language of Offshore Liquidity

Binance Exchange Info showed USDT as the quote asset for 452 trading pairs at the data cut-off, compared with 286 for USDC.

Market makers on the world's largest offshore venue price primarily in USDT, not USDC. Replacing it would require USDC to persuade an entire market-maker ecosystem to change its quote currency. The switching cost is enormous.

It Locked In the Two Biggest Rails Before Rivals Caught Up

At the data cut-off, Tron held about 47.82% of USDT supply and Ethereum held 42.22%, or 90.04% combined.

Users and market makers don't choose a rail simply because they prefer USDT. They choose it because USDT's liquidity and distribution network are already there. Moving elsewhere means giving up the network effect, and no participant wants to leave first.

It Meets a Need the US and EU Don't Serve: Accessible USD

Chainalysis found stablecoins accounted for more than half of exchange purchases in markets using COP, ARS, and BRL. Across Sub-Saharan Africa, they support trade, FX access, payments, and savings. In Nigeria alone, USDT represents 7% of purchases, compared with 5% for the entire USD cohort.

This is the core advantage. Where local currencies depreciate and capital controls remain tight, users aren't searching for the most compliant stablecoin. They want the one they can access. USDT arrived first, built broader distribution, and established itself across regions largely beyond direct US and EU regulatory reach. Its first-mover advantage remains difficult to challenge.

It Has the Financial Firepower to Defend Its Lead

Tether's Q1 2025 attestation/reserves report listed more than $1 billion in operating profit from traditional investments during the quarter, roughly $120 billion in Treasury exposure, $5.6 billion in excess reserves, about $7 billion in supply growth, and 46 million additional wallets.

Those profits give Tether the ammunition to keep funding distribution, preserve deep liquidity, and play a long game few competitors can afford. The figures come from an attestation, which isn't equivalent to a full financial audit.

Together, these four advantages create a hard-to-dislodge position. Liquidity attracts market makers. Market makers add more trading pairs. Those pairs reinforce USDT's role as the default quote currency, which then draws in more liquidity. USDC will struggle to break this loop in the short term unless a sufficiently large shock intervenes, such as a crisis of confidence in Tether's reserves.

USDT is losing ground in the US and EU B2B segment, where businesses need a compliant, transparent stablecoin capable of integrating easily with traditional finance. B2B isn't the whole market. Across B2C users, including individuals, small merchants, and participants in emerging markets, USDT faces little competition. This group still accounts for a very large share of the entire DeFi industry, and Tether benefits from years of accumulated trust and reach in smaller markets USDC has yet to penetrate.

USDT also extends beyond a single stablecoin product. Tether has built a broader ecosystem around structural flexibility and rapid innovation aimed at newer, younger, more dynamic users. This approach gives the brand a closer cultural fit with web3 and indirectly expands its influence.

What Does the Market Share Data Show?

The table below tracks total stablecoin market cap alongside USDT and USDC market share from 2023 through July 2026.

What the table shows: USDT's decline wasn't continuous. Most movement clustered around specific event windows while total market cap expanded through much of the period. USDC captured part of the shift, and newer challengers took another meaningful share.

2023: Two Shocks Propel USDT's Breakout

In just three months, from February to April 2023, USDT's share jumped from 49.59% to 60.73%. In mid-February, New York regulators forced Paxos to stop issuing BUSD, then the third-largest stablecoin, following SEC allegations. Less than a month later, Silicon Valley Bank collapsed, trapping $3.3 billion in USDC reserves held by Circle. USDC broke its peg and fell below $0.88, sending a wave of capital into USDT as a safe haven.

2024: A Sideways Year

USDT held its share around 69–71% and reached an all-time peak of 71.38% in February. Meanwhile, the total market cap grew 48.8% alongside the broader crypto rally. No single event was large enough to shift the balance.

2025: The steepest market-share losses arrive in two waves.

Wave One: January to April 2025

• MiCA took full effect on December 30, 2024, forcing licensed exchanges to delist unauthorized stablecoins. Coinbase removed USDT first. Crypto.com followed by its January 31 deadline, and Binance followed on March 31. Tether hadn't sought an EU license, while Circle had. USDT's share fell from 67.26% to 61.75% in four months, with USDC gaining ground over the same period.

Wave Two: September to October 2025

• USDT still grew in absolute terms, from $164.69B to $174.88B, while losing share as the wider market expanded sharply. Total stablecoin market cap rose $17.3 billion in September alone, driven by the SEC recognizing stablecoins as cash equivalents, a surge in collateral demand from decentralized derivatives exchanges, and third-party challengers such as USDe and PYUSD growing more than 150% each in a single quarter. Most share lost by USDT during this wave moved to those new challengers, not USDC.

2026: Macro Pressure Drives a Broad Pullback

After peaking at $318.49B in May, total stablecoin market cap contracted for two consecutive months, marking the sharpest monthly decline since Terra collapsed in 2022. Bitcoin fell 18%, while capital flows into exchanges slowed sharply. MiCA's transition period also ended on July 1, 2026, forcing the removal of remaining unauthorized stablecoins and affecting roughly $17.5 billion in USDT still circulating in the EU. Both USDT and USDC declined in absolute terms during this period. The move reflected a wider market contraction, not a continued rotation specifically from USDT into USDC.

Bottom line: Nearly all meaningful market-share movement sits within the four event windows above. Outside them, the trend is largely sideways. USDC also didn't capture every point USDT lost. A meaningful portion, especially during the September to October 2025 wave, moved into third-party challengers.

What's Actually Weakening?

Its Footing on the Licensed Shelf Is Shrinking

The NYAG and CFTC in the US, along with ESMA and compliant exchanges such as Binance EU and Kraken, have formally removed USDT from regulated trading pairs across the US and EU. This isn't market speculation. The legal and administrative actions have already occurred. Losing a place on the licensed shelf is a lasting setback at the official distribution layer, unlike ordinary market-share swings, which can reverse.

Its Market Share Is Declining Over Time

Measured from the 2024 peak, USDT's share of the total stablecoin market cap continues to trend lower. This follows directly from the loss of compliant channels. As those routes close, institutional and B2B capital moves to USDC, not necessarily because users are abandoning USDT. The regulatory framework leaves them no compliant alternative.

Institutional Trust Is Weakening Where Tether Needs It Most

Tether's legal history with the NYAG and CFTC remains a stain on its record. It carries less weight among retail users in emerging markets, yet creates a hard barrier in compliance-heavy channels such as banks, institutional funds, and mainstream payment rails. Those are precisely the markets USDT needs to enter if it wants to shed its image as an outside-the-system stablecoin.

Dependence on Two Chains Creates Concentration Risk

At the data cut-off, about 90.04% of USDT supply sat on Tron and Ethereum. This concentration cuts both ways. The same setup powering its network effect also creates a latent weakness. If either rail suffers a technical failure or faces tighter regulation, such as Tron coming under greater regulatory scrutiny, USDT has no quick Plan B for spreading the risk.

Its Reach Across Emerging Markets Hasn't Weakened

Chainalysis data and distribution figures show USDT still dominates this segment. This is why weakening doesn't equal losing the crown. Demand across these markets sits largely beyond US and EU regulatory reach, so cracks in the Western compliance layer don't automatically spread into them.

In short, the areas genuinely weakening, including regulated shelf space and institutional trust across compliance-heavy channels, all sit within the official distribution layer controlled by the US and EU. The advantages still intact, including liquidity, network effects, and emerging-market demand, sit in a layer Western regulation barely reaches.

Both claims can therefore be true at once: USDT is losing its biggest markets, and USDT still dominates. Each describes a different layer of the same system.

Conclusion

USDT no longer has an easy path through tightly supervised financial markets. In the US, pressure comes from its enforcement history with the NYAG and CFTC, along with the regulatory direction taking shape under the GENIUS Act. Those constraints will persist and remain a long-term barrier to Tether's efforts to clean up its image and enter compliance-heavy channels. In the EU, MiCA has drawn a firm compliant lane around a July 1, 2026 deadline with no exceptions. USDT doesn't meet the requirement to hold 60% of reserves at European banks, so licensed venues have pushed it off the spot-trading shelf. A short-term reversal looks unlikely because this outcome reflects a deliberate strategic choice by Tether, not a temporary technical obstacle.

The global stablecoin market, however, extends far beyond the US and EU. Viewing it only through a Western regulatory lens can obscure this part of the picture. In regions where users need practical USD because inflation is high, FX access is weak, capital controls are tight, or cross-border payments are expensive, USDT still has enormous room to operate. Few competitors can match its first-mover advantage, reach, or network effect built over many years. The loop remains self-reinforcing: deep liquidity attracts market makers, market makers add trading pairs, and those pairs deepen USDT's role as the default quote currency across these markets.

The most accurate framing isn't "USDT is losing" or "USDT remains unbeatable." Both miss half the picture. USDT is being squeezed out of the compliant Western layer while preserving, and even strengthening, its role as a global liquidity provider and dollar proxy across offshore and emerging markets. Network effects, alignment with existing rails, and real demand beyond direct US or EU regulatory reach continue to protect the lead.

What USDT is losing isn't its overall market footing. It is losing the places where regulation still allows it to stand. Its power map is being redrawn as the center of gravity shifts away from direct US and EU influence and moves deeper into markets where USDT has rarely faced a true competitor. The longer-term question isn't whether USDT will survive. It is whether USDT dominance offshore and across emerging markets, paired with USDC dominance in compliant Western channels, can form a lasting structure. The alternative is a transitional balance waiting for a large enough shock, such as a crisis of confidence in reserves, a sudden policy shift, or a new competitor, to reset the market again.

SOURCE:

• DefiLlama Stablecoins API - https://stablecoins.llama.fi/stablecoins?includePrices=true
• DefiLlama USDT Historical Data - https://stablecoins.llama.fi/stablecoin/1
• DefiLlama USDC Historical Data - https://stablecoins.llama.fi/stablecoin/2
• DefiLlama Stablecoin Charts - https://stablecoins.llama.fi/stablecoincharts/all
• Binance Exchange Information API - https://api.binance.com/api/v3/exchangeInfo
• ESMA and European Commission Guidance on Non-MiCA-Compliant ARTs and EMTs - https://www.esma.europa.eu/press-news/esma-news/esma-and-european-commission-publish-guidance-non-mica-compliant-arts-and-emts
• ESMA Statement on the End of MiCA Transitional Periods - https://www.esma.europa.eu/sites/default/files/2026-04/ESMA75-113276571-1679_Statement_on_the_end_of_transitional_periods_under_MiCA.pdf
• Binance Will Delist Non-MiCA-Compliant Stablecoin Trading Pairs for EEA Users - https://www.binance.com/en/support/announcement/detail/bcaa1f68d6a6450099056ff694ad6c46
• Kraken: Changes to Stablecoin Offerings for EEA Clients - https://support.kraken.com/articles/stablecoin-offerings-for-eea-clients
• Circle Is First Global Stablecoin Issuer to Comply With MiCA - https://www.circle.com/pressroom/circle-is-first-global-stablecoin-issuer-to-comply-with-mica-eus-landmark-crypto-law
• NYAG: Bitfinex and Tether Settlement - https://ag.ny.gov/press-release/2021/attorney-general-james-ends-virtual-currency-trading-platform-bitfinexs-illegal
• NYAG: Full Bitfinex and Tether Settlement Agreement - https://ag.ny.gov/sites/default/files/2021.02.17_-_settlement_agreement_-_execution_version.b-t_signed-c2_oag_signed.pdf
• CFTC: Tether and Bitfinex Fines Totaling $42.5 Million - https://www.cftc.gov/PressRoom/PressReleases/8450-21
• Congressional Research Service: Overview of the GENIUS Act of 2025 - https://www.congress.gov/crs-product/IN12553
• Congressional Research Service: GENIUS Act Report PDF - https://www.congress.gov/crs_external_products/IN/PDF/IN12553/IN12553.1.pdf
• Tether Q1 2025 Results and Reserve Figures - https://tether.io/news/tether-approaching-120b-in-u-s-treasuries-confirms-quarterly-operating-profit-over-1b-and-strengthens-global-usdt-demand-in-q1-2025/
• Tether Q1 2025 Financial Figures and Reserves Report - https://assets.ctfassets.net/vyse88cgwfbl/1LdSmP3HBynDxm6wvkDSsL/c4bcbd1f6fc18a0e8b3a12444ac8ae97/ISAE_3000R_-_Opinion_Tether_International_Financial_Figures___Reserves_Report_31.03.2025_RC187322025BD0040.pdf
• Chainalysis: Latin America Crypto Adoption 2025 - https://www.chainalysis.com/blog/latin-america-crypto-adoption-2025/
• Chainalysis: Sub-Saharan Africa Crypto Adoption 2025 - https://www.chainalysis.com/blog/subsaharan-africa-crypto-adoption-2025/
• Chainalysis: The 2025 Geography of Cryptocurrency Report - https://www.chainalysis.com/reports/2025-geo-crypto-report/