Tether’s new stablecoin, USAT, could pose the first serious challenge to Circle’s (CRCL) USDC in the U.S. market, analysts say — if it can win over institutions.

Launched in partnership with federally chartered bank Anchorage Digital and Cantor Fitzgerald, USAT is Tether’s first attempt at a U.S.-regulated dollar token aimed at institutional users.

Tether's flagship stablecoin, the $186 billion USDT, dominates global crypto trading and emerging markets. But USAT enters a more crowded and compliance-driven arena in the U.S. where Circle has long positioned USDC as the go-to choice for banks, fintechs and exchanges operating under U.S. oversight. USDC has a market capitalization of $72 billion, less than half of Tether's USDT, but it grew twice as fast last year.

"I believe USAT is a threat to USDC, even though the DNA of Tether and Circle is very different," said Noelle Acheson, author of the Crypto Is Macro Now newsletter. While Circle has long positioned its token as the stablecoin of choice for regulated financial entities, USAT is clearly built to compete in that same arena, she argued.

"USAT is designed to be institutional-grade, looking to attract clients that would otherwise be happy using USDC," she said.

Acheson pointed to several potential advantages: backing from Anchorage, partnerships with traditional finance firms like Cantor Fitzgerald, which also provides services to Tether's USDT, and the potential ability to tap into Tether’s global network through conversion with USDT.

She also noted that the involvement of former White House official Bo Hines in the project may ease concerns about Tether’s long-criticized reserve practices. "That could help institutions overcome their reluctance," she said.

Nicholas Roberts-Huntley, CEO of Blueprint Finance, argued that Tether's U.S. entrance underscores that "demand for regulated dollar tokens among banks and fintechs is real" after the stablecoin-focused GENIUS Act was into law. It also shows that the stablecoin market is "shifting from size and utility to differential regulatory positioning and institutional trust."

"USDC has operated without a credible domestic competitor, as other entrants lacked the scale, distribution, or regulatory profile to challenge its position," he said. “The launch of USAT could change that.”

Owen Lau, analyst at ClearStreet, took a more cautious view.

"It is too early to gauge at this point," he said. “But I think it poses a risk, but a manageable one for CRCL/USDC."

It could also carry risks for Tether, with the new token eating into USDT's existing dominance. "There may even be a cannibalization risk," he said.