Looking at USDT and USDC’s market capitalization today, you may be fooled into thinking they are unchallengeable. With Tether and Circle controlling over 80% of global stablecoin value by market cap as of October 2025, most other crypto-native challengers have yet to put up a convincing fight, despite the fact many offer compelling value propositions for both users and distribution platforms. To date, a crypto-centric market, lack of regulatory clarity, first-mover advantages, and strong integrations with on- and off-ramps have enabled huge value creation for Tether and Circle.Stablecoin Summer (a term to describe the boom in demand, regulatory clarity, and market participants in recent months) has started to expose some very real challenges for what many consider the de facto stablecoins. It’s clear the pair have felt the pressure to respond: a spate of well-connected executive hires and regulated launches in Europe (EURC) and the US (USA₮) have proven they understand the need to change and adapt to maintain dominance — or at least continue growing. But an important question remains: will this be enough to maintain their lead over the pack?Ecosystem CompetitionStablecoin usage today has been driven by decentralized finance (DeFi) applications, including trading, lending, staking, yield farming, and liquidity provisioning. Another significant component is derived from strong demand for cross-border payments, savings, and general access to dollars in economies with volatile or restricted fiat currencies.Large centralized exchanges have acted as kingmakers for Tether and Circle, playing the vital role of on- and off-ramps required to bring global demand into and out of the system. There is little doubt that without Coinbase, USDC (launched four years after USDT) would not enjoy the position it has today. One needs to look no further than Coinbase’s 50% share of Circle’s USDC reserve revenue to understand the dynamic. Bitfinex and Tether’s relationship is slightly different but shares similarities, and exchanges like Binance providing support have enabled Tether’s success.However, a recent wave of new entrants, like USDG (Paxos) and USDe (Ethena), have shown participants are willing to enter by offering easier ways for users to earn yields on their holdings. In a relatively homogenous product, this is one of the main value drivers for users. Take USDe’s recent announcements, for example: integrations with Bybit and Binance have made it easier for users to earn rewards alongside deeper product integration — namely, offering users yield on funds parked on the platform or held as collateral. USDG, as part of the Global Dollar Network, has done much the same thing.More recently, Hyperliquid (a decentralized exchange operating on their own layer-1 blockchain) announced the launch of their own native, compliant stablecoin, USDH, in partnership with Native Markets. Prior to this, Hyperliquid saw incredible volume growth, jumping to over $330B in spot and perpetual trading volume in July 2025, briefly surpassing Robinhood. As a result of this, they hold $5.97B of USDC deposits on platform — nearly 10% of total circulating supply. The move to their own stablecoin clearly signaled that major ecosystem players want in on the action; without any agreement in place, these players would receive none of the interest revenue generated by Circle from the reserves backing USDC. In Hyperliquid’s case, assuming a conservative 4% return, the opportunity could represent up to $240M in annual revenue if they could convert all USDC platform into their own stablecoin.In direct response to the news, Circle, in a bid to defend their market and revenue share, launched its own native version of USDC on HyperEVM. The move aims to deepen USDC integration into Hyperliquid’s ecosystem by allowing seamless transfers across over a dozen networks via Circle’s Cross-Chain Transfer Protocol. Alongside this, they announced an investment by purchasing $HYPE tokens, the native utility and governance token of the Hyperliquid ecosystem.In a similar way, Ethena’s recent USDe announcement with Binance puts forth a challenge to Tether. Following Binance listing USDe, the exchange has added USDe trading pairs along with an integration with Binance’s Earn program. Like USDC and Coinbase, Binance users in certain jurisdictions will now be able to earn rewards on the stablecoins they hold on the platform, including within portfolio margin on futures and perpetuals trading. The move, along with an attractive incentive offer (12% APR for a limited time) has seen USDe on platform skyrocket to over $2B. At the same time, USDe’s market cap crossed $14B, up from $6B in January of this year.This follows a string of growth initiatives from the third largest stablecoin by market cap; USDe usage outpaced USDC on Bybit following a similar integration announcement. These examples are also far from exhaustive. Other players, such as USDG, a stablecoin issued by Paxos, have also sought to integrate with other key exchanges and players with the same aim of earning market share from Tether and Circle by breaking down the value chain and distributing more of the interest revenue earned on reserves.As of January 1, 2025, USDT and USDC collectively 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%. While that drop may appear modest, it marks a clear sign that competition is intensifying and new entrants are beginning to erode the dominance of the two incumbents.Regulatory and Other ChallengesThe two incumbents have not only seen headwinds from industry players. Recent regulatory updates have also brought mounting challenges. The EU recently rolled out MiCA, their comprehensive crypto framework regulating crypto assets, their providers, and other ecosystem participants. Tether made a definitive announcement: they would not comply with the regulation, seen as too restrictive and dangerous according to their CEO. As a result, it was delisted from centralized exchanges providing vital on- and off-ramps. Circle, though in a stronger position thanks to its MiCA compliance, was also not left untouched. Under the regulation, USDC and other stablecoins are classified as e-money tokens (EMTs); it cannot legally pay yield to holders in the EU, potentially impacting its value to users on venues previously offering rewards.Luckily for Tether is the fact that Europe constitutes a relatively small share of their total market, with the majority of USDT’s volume derived from Asia and other non-Western markets. Circle also saw a slightly muted effect, given that all stablecoins fall under the same requirements — meaning unless held on-chain, no user would be able to receive reward payments. This does, however, generally diminish the value of stablecoins versus other traditional ways of holding cash.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 and will follow the same delistings that have marked its EU centralized exit. Stablecoins will also not be able to directly pay holders interest and, while currently exempt, banks are lobbying for rewards programs to be included in the ban too. No surprise, given the potential for deposit flight due to the significantly higher returns being offered through these stablecoin programs.Tether has responded by launching USA₮, their new US-compliant offering, to be issued by Anchorage Digital and led by former White House crypto sherpa Bo Hines as CEO. The move was measured; Tether opted to maintain support for the highly profitable, offshore structured, non-US and -EU compliant USDT and add USA₮ as the complementary regulated product.While rewards programs remain up in the air with banks lobbying against them, Circle and other issuers alike in the US face the threat of these same banks and other institutions entering the race in force following the GENIUS Act. Institutions including Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo are all actively planning or exploring stablecoin initiatives, with Bank of America and Citigroup confirming plans to launch their own U.S. dollar-backed stablecoins. Fintech giants are also getting in on the action, with PayPal, Revolut, and Robinhood all set to launch their own tokens.ConclusionThe dominance of Tether and Circle, once seen as unshakable, is now facing its most formidable test yet. What was once a two-horse race is evolving into a crowded, complex ecosystem of challengers, each leveraging 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 that 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 the shifting tides. 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, but 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 may hinge less on being first, and more on being the most adaptable.