Tether challenges USDC Solana hegemony with $127.5M Drift bailout

Tether, the stablecoin giant behind $185 billion $USDT, has announced its support of a recovery plan to assist Drift Protocol following a devastating hack on April 1.

Drift, a Solana-based perpetual futures exchange, lost around $285 million after its team was allegedly infiltrated by North Korean-linked hackers to compromise a multisignature wallet.

The move will also see Drift “transition its settlement asset from $USDC to $USDT” and appears to be a “masterclass” bid for dominance on Solana where competitor Circle’s $USDC is more popular.

While $USDT is far-and-away the crypto industry’s dominant stablecoin, on Solana, closest competitor $USDC flips the script.

In the wider market, $USDT’s market cap is over 2.3 times that of $USDC’s $79 billion. But on Solana, $USDC’s market cap of $8.1 billion is 2.65 larger than $USDT’s $3.05 billion.

In replacing $USDC, Tether claims it will bring “more than 128,000 users and over 35 ecosystem teams onto $USDT-based trading… on one of Solana’s largest perpetual trading venues.”

Indeed, Drift Protocol’s pre-hack total value locked was $550 million, which would make it Solana’s eighth largest protocol by the same metric, ahead of real-world asset platforms Securitize and xStocks and decentralized exchange Meteora.

A long road to recovery?

The recovery plan is far from a straight-up reimbursement for users. It will instead see exchange revenue directed toward recovery, with “capital support… introduced progressively and aligned with performance.”

DeFiLlama’s 0xngmi remarked that it looks “closer to a plan where users recover their hacked amounts by trading on drift.”

Both a portion of exchange fees and outside support funds will be committed to a “recovery pool” for distribution to affected users. Drift also describes a planned token “intended to represent a claim on the recovery pool.”

With a nod to concerns raised in the wake of the hack, it explains that all core assets will be controlled by a new “community-based multisig,” using “dedicated signing devices, with transaction content independently verified.”

Going round in Circles

Circle has been repeatedly criticized over its failure to freeze funds in the aftermath of hacks and other illicit activity.

The Drift hack was one of the most egregious examples of this, as highlighted by blockchain investigator, and frequent Circle critic, ZachXBT.

Other examples include the SwapNet hack, where over $3 million of $USDC sat unfrozen on Base hours after the event, and last year’s GMX hack in which $8 million was bridged using Circle’s own tool.

This latest incident appears to have finally landed $USDC’s issuer in hot water.

A class action suit has reportedly been filed against Circle, accusing the firm of “knowingly permitting the attackers, reportedly tied to North Korea’s government, to offload $230 million of their spoils over the course of several hours by using Circle’s own stablecoin $USDC and its blockchain bridge CCTP, instead of freezing the funds.”

Protos reached out to Tether for comment, but it didn’t respond immediately, we will update this piece if we hear back.