USD1 Stablecoin’s Expansion in DeFi: Analyzing the Reshaping of the Stablecoin Market’s Three-Pillar Structure

The stablecoin market is undergoing a profound transformation that goes far beyond simple growth in scale. In Q1 2026, the global supply of stablecoins reached a record high of $322 billion, accounting for 75% of all cryptocurrency trading volume. Driving this shift is not only the ongoing rivalry between USDT and USDC, but also a new contender—USD1, a stablecoin issued by World Liberty Financial that has been on the market for just over a year. USD1 is carving out a unique path in the DeFi ecosystem and gradually reshaping the market landscape.

Since its launch in March 2025, USD1 has surged into the top five stablecoins by market capitalization, at one point nearing $5.4 billion. Recently, it was officially adopted by Aster DEX as the exclusive settlement asset for perpetual contracts tracking real-world assets. However, its expansion has consistently raised questions about the underlying drivers of its growth.

Key Milestones in USD1’s DeFi Expansion

On April 7, 2026, World Liberty Financial’s stablecoin USD1 entered into an exclusive partnership with decentralized exchange Aster DEX. Under this agreement, all perpetual contracts on Aster DEX that track real-world assets will settle exclusively in USD1, fully replacing the previous dual-settlement mechanism with USDT. The initial markets launched include gold, silver, crude oil, and Brent crude, with trading pairs $XAUUSD1, $XAGUSD1, $CLUSD1, and $BZUSD1.

From a product design perspective, USD1 commodity pairs use a fee structure of maker -0.5 bps and taker 1 bps, meaning the exchange pays rebates to liquidity providers to incentivize deep market-making. Meanwhile, the first Morpho vault for USD1 went live on the Monad network, offering annual yields of roughly 9% to 13% with zero fees at present. The project positions USD1 as a yield-generating asset, targeting future use as a native settlement currency for AI agent interactions.

Ecosystem Expansion of Emerging Stablecoins

USD1’s launch and development have shown rapid expansion. The following timeline highlights key milestones:

This timeline reveals a critical pattern: every leap for USD1 aligns closely with strategic ecosystem expansion. The bank license application creates an institutional bridge from "on-chain asset" to "regulated financial instrument," while intensive DeFi protocol partnerships open differentiated application spaces.

Data & Structural Analysis: Mapping a Three-Pillar Market Landscape

Overall Market Structure

As of April 2026, the stablecoin market displays a clear "two giants plus challengers" structure. USDT leads with a market cap of roughly $189.7 billion, followed by USDC at about $77.9 billion. Together, they control approximately 89% of the market.

Yet, marginal shifts in market share are noteworthy. In Q1 2026, USDT’s supply shrank by about $3 billion, dropping its share from 60.7% at the start of the year to around 57.85%—the first quarterly supply contraction for Tether since the Terra collapse. Meanwhile, USDC’s supply increased by about $200 million, marking a cumulative 220% growth since the end of 2023.

Through incentive strategies and ecosystem expansion, USD1’s market cap approached $5.4 billion in February 2026, entering the global top five stablecoins. Different data sources report varying figures: some show USD1’s circulating supply at roughly $4.6 billion, distributed across Ethereum, BNB Chain, and Solana, the three major public chains. Based on daily active addresses, USD1 ranks fifth among stablecoin issuers.

WLFI Token Market Performance

As of April 27, 2026, the WLFI token was quoted at $0.07368 on Gate, down 2.29% over 24 hours. WLFI’s historical high was $1.10, and its current price reflects a cumulative drawdown of about 93%. Circulating supply stands at 24.66 billion tokens out of a total 100 billion, with a current market cap of roughly $1.81 billion and a fully diluted valuation around $7.37 billion. Over the past year, WLFI’s price has fallen by 67.74%.

The token’s persistent weakness is closely tied to recent governance controversies. In mid-April 2026, World Liberty Financial proposed a lock-and-burn plan for 4.524 billion WLFI tokens, including a two-year lock period, three-year unlock schedule, and a 10% burn of about 4.5 billion tokens. The proposal aims to ease concerns about insider dumping, but has yet to reverse short-term price trends.

WLFI Token’s Structural Role in the USD1 Ecosystem

WLFI governance tokens play a complex structural role within the USD1 ecosystem. In April 2026, the WLFI treasury deposited about 3 billion WLFI tokens into the Dolomite lending protocol as collateral, borrowing roughly 50.44 million USD1. This pushed the USD1 lending pool utilization rate above 100%, creating a liquidity deficit of about -232,000 USD1. Consequently, USD1 deposit rates soared to 35.81% APR, and borrowing costs climbed to 30%. These rates were artificially generated by a single internal entity, not by genuine market demand.

This setup bears similarities to the circular lending that contributed to the FTX collapse in 2022. The project team responded that the position remains overcollateralized and far from liquidation risk. Notably, Dolomite’s co-founder also serves as an advisor to World Liberty Financial, raising potential conflicts of interest.

Differentiated Positioning in the Three-Way Competition

The current stablecoin market’s three-way competition unfolds along two main axes: regulatory compliance and distribution scenarios.

USDT maintains dominance through global trading depth and strong network effects in emerging markets. However, after MiCA took effect, several European exchanges were forced to adjust their support for USDT, increasing compliance pressures. To address this, Tether launched a US-compliant version, USAt, in January 2026, operating alongside offshore USDT. USDT remains the backbone of global trading liquidity, but its compliance transition is ongoing.

USDC leverages compliance as its core advantage. Circle completed its IPO, received conditional OCC approval to establish a federal trust bank, and obtained an EMI license in France to meet MiCA requirements. Data shows USDC now accounts for about 64% of adjusted stablecoin trading volume, surpassing USDT for the first time since 2019. USDC’s transactions are more institutional and programmatic, with an average transfer size of $557 and a turnover rate of 90 times. USDC is positioning itself as the institutional compliance interface.

USD1 pursues a distinctly differentiated strategy. Rather than directly competing for trading scenario share with USDT and USDC, it builds exclusive settlement environments, connects institutional endorsements and large transaction pipelines, and seeks a banking license to internalize profits. USD1 aims to upgrade from a product to a platform, but its high concentration of circulation and related controversies represent a parallel risk dimension alongside market share.

Dissecting Public Opinion—Divergent Interpretations of Growth Models

Public discourse around USD1 is far more complex than typical crypto projects. The debate is not about technology or economic models, but about fundamentally different interpretations of its growth strategy.

Supporters’ Views

Some industry observers see USD1 as a major innovation in the stablecoin market. They argue that USD1’s rapid rise validates the effectiveness of differentiated competition—by anchoring specific DeFi scenarios rather than confronting giants head-on, it opens new growth avenues. The $500 million Abu Dhabi capital investment is viewed as global endorsement of emerging stablecoins. Legal experts note that foreign investment in USD stablecoins objectively increases demand for US Treasuries, which benefits the dollar system at the macro level.

Critics’ Views

Critics see USD1’s growth as driven by subsidies and related-party advantages. Key arguments include: USD1’s early surge relied heavily on high incentives; the project’s token holdings are overly concentrated; and WLFI treasury’s circular lending on Dolomite resembles the FTX model. Some believe USD1’s rapid growth is distinctly non-market, representing an attempt to convert special resources directly into market share rather than genuine market competition.

Examining Narrative Authenticity—Structural Observations During Expansion

USD1’s growth narrative requires rigorous fact-checking. Three dimensions are particularly relevant:

Sustainability of Growth Drivers. USD1’s early rapid growth depended largely on high incentives. In December 2025, a major exchange launched a USD1 fixed savings program with up to 20% annualized yield. Subsequently, WLFI governance proposals used treasury funds to incentivize USD1 adoption. Before incentives started, USD1’s circulation was about 2.7 billion; after incentives, it quickly climbed above 3 billion. Whether this subsidy-driven growth can persist after incentives taper off remains unproven.

Concentration Risk. In April 2026, risk rating agency CORE3 gave WLFI a D grade, placing it among the top 50 highest-risk projects on its platform. Factors included lack of ongoing on-chain monitoring, absence of a structured bug bounty program, and governance risks stemming from large insider holdings.

Selective Transparency. During the Dolomite lending controversy in April 2026, WLFI minted 25 million USD1 and simultaneously burned 3 million, but did not disclose the source or reason for the burn. This selective disclosure leaves uncertainty between blockchain transparency and adequate information release.

Industry Impact Analysis: DeFi Settlement Differentiation and a New Stablecoin Competition Paradigm

Competitive Differentiation in DeFi Settlement Layers

USD1’s replacement of USDT as the exclusive settlement asset for RWA perpetual contracts on Aster DEX marks a shift from vague market share competition to clear scenario occupation. Unlike traditional exchange listing strategies, this partnership binds specific asset classes at the protocol level, creating an exclusive settlement layer. The launch of USD1’s Morpho vault further signals that stablecoins are evolving from passive trading tools to active yield-generating assets.

From a broader perspective, USD1’s narrative of tokenizing commodities, USDC’s focus on institutional compliance, and USDT’s defense of global liquidity networks represent three possible directions for stablecoins. The competition among these paths will ultimately determine which model sets the standard for next-generation payment infrastructure.

Dynamic Evolution of the Regulatory Environment

USD1’s application for a national trust bank license is triggering a genuine regulatory race. By the end of 2025, the OCC had conditionally approved trust bank license applications for Circle, Ripple, BitGo, Fidelity, and Paxos. Obtaining such a license allows stablecoin issuers to directly access the Federal Reserve payment system, internalizing key profit segments such as issuance, custody, and redemption, fundamentally changing the stablecoin issuer business model.

In Europe, senior officials at the French central bank, speaking via BIS, argued that current MiCA rules are insufficient to curb the dominance of dollar stablecoins—which hold a 98% global market share. France called for significant restrictions on the use of non-euro stablecoins in EU payment systems. This means USD1’s entry into the EU market faces not only technical compliance hurdles under MiCA, but also an increasingly complex regulatory environment.

The Formation of a New Stablecoin Competition Paradigm

USD1’s emergence elevates stablecoin competition from technical feature comparisons to a multidimensional contest involving ecosystem integration, institutional channels, and narrative capability. It demonstrates how differentiated scenario strategies can accelerate adoption of new stablecoins, while also revealing deep rule conflicts when ecosystem expansion and structural risks overlap. The resulting DeFi scenario differentiation and redefinition of stablecoin competition paradigms will continue to shape the long-term evolution of the crypto industry.

Conclusion

USD1’s expansion in DeFi offers a unique case study for the stablecoin market. It shows how emerging stablecoins can carve out space through exclusive settlement scenarios and differentiated positioning, and highlights the importance of token structure and governance transparency for sustainable ecosystem development.

Looking forward, USD1 is reshaping the competitive landscape for stablecoins. Regardless of its ultimate trajectory, the DeFi scenario differentiation, regulatory race, and new competition paradigm it has sparked will continue to influence the crypto industry’s long-term evolution. For market participants, the real question may not be whether USD1 can challenge USDT or USDC, but how the formation and evolution of this three-pillar structure will redefine the rules of the stablecoin game itself.