The world of stablecoins is suddenly looking shaky.

Seismic shifts may be afoot in the $137 billion market after New York-based Paxos Trust Company, which mints Binance’s stablecoin, said it would cease issuing new BUSD tokens after US regulators labelled the asset an unregistered security.

The US move has left investors questioning the future shape of the market for stablecoins, tokens that are usually backed by traditional assets like dollars and US Treasuries to tame the wild swings that characterise cryptocurrencies.

The immediate impact hasn’t been negative for the stablecoin market as a whole, though; it’s actually seen its total value grow by $2bn since the Paxos announcement on Feb 13.

“There’s way too much demand for dollar-based stablecoins for them to go away,” said Alex Miller, CEO at bitcoin developer network Hiro.

Instead, rivals are vying to cash in on the woes of BUSD, the world’s third-biggest stablecoin, whose market value has shrunk to $12.9bn from $16.1bn, with its market share narrowing to 9.4 per cent from 12.1pc, according to CoinGecko.com.

Market leader tether (USDT) has been a big beneficiary, adding $1.9bn to its market capitalisation to hit $70.3bn since the news. It now commands 52.6pc of the stablecoin market, up from just over 51pc.

Circle’s USD Coin, the second-biggest stablecoin, edged up over $700 million to $42bn, lifting its market share to 31.3pc from 30.9pc.

And the winner is … tether

Stablecoins are a key part of the crypto sphere, with their steadier value meaning they’re used to facilitate transfers between cryptocurrencies or into regular cash.

Traders also use these tokens to hedge their positions, and hence dwindling market value is associated with falling liquidity and leverage in the broader crypto market.

Head of Research and Strategy at crypto firm Matrixport, Markus Thielen, said the Paxos announcement and subsequent slump in BUSD had caused a big shift in the stablecoin market.

“And tether wins.”

Broader crypto market impact also seems to have been contained with bitcoin rising 14pc over the past week to $24,902, shrugging off worries that central banks will keep raising rates.

Among the reasons for the sanguine reaction is that BUSD is largely used to trade on Binance, the world’s largest crypto trading platform, while its usage is limited in other parts of the crypto world, according to analytics firm Kaiko.

“While BUSD is used in DeFi, it is not systemically important to the ecosystem,” Kaiko’s Riyad Carey said.

Betting on future prices

The developments around Binance’s stablecoin have also boosted trading on competing platforms; since Feb 1, Binance’s bitcoin liquidity is down almost 30pc while US-based Coinbase’s is up nearly 15pc, according to Kaiko.

Daily open interest for bitcoin to BUSD perpetual swaps has dropped from over 17,000 bitcoin at the beginning of February to 13,726 bitcoin, Binance data showed, pointing to traders withdrawing bets on future prices for BUSD.

While some uncertainty remains on the impact of the US Securities and Exchange Commission ruling on other stablecoins, the market appears to have adjusted, according to some crypto players.

“This is unlikely to represent a critical large structural change to the market, for now,” said Vetle Lunde, an analyst at Arcane Research.

He added: “Enforcement against USDC or the non-US domiciled USDT, could have more dramatic implications.”