Tether (USDT), the world's largest stablecoin by market capitalization, continues to grow despite Elon Musk's turmoil in the crypto market.
According to Tokenview data, in May, Tether issued an additional 11 billion USDT, and the current total market value of USDT has exceeded 62.4 billion US dollars. As of early May, USDT’s on-chain transaction volume (referring to any transfer of value within the blockchain network, including buying, selling, and remittance) surpassed the $1 trillion mark for the first time.
Following BTC and ETH, USDT has surpassed BNB in market value and has become the top three tokens in market value.
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King Tether
Stable pass is an encrypted asset with stable price, and its price is linked to legal currency. The most common in the market are stable tokens that track the price of the US dollar.
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Data source: https://www.coingecko.com/en/stablecoins
The market is so large, there are dozens of types of stable tokens on the market, but Tether (USDT) always dominates.
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Data source: https://www.coingecko.com/en/stablecoins
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Where did USDT come from and where is it going
Tether USD (USDT), which is issued by Tether Corporation registered in the Isle of Man and Hong Kong.
USDT was then called Realcoin and was renamed Tether USD by its company Tether Ltd. in November 2014. Tether company promises to strictly abide by the 1:1 reserve guarantee, that is, every time 1 USDT is issued, its bank account will have a 1 USD fund guarantee. In February 2015, it began to be traded on the trading platforms Bitfinex and Poloniex, and later launched on more platforms, and is widely used in token transactions. Most trading platforms now support trading pairs composed of USDT.
USDT is issued and traded using the Omni (formerly Mastercoin) protocol. Therefore, its issuance and transactions can be regarded as based on the public chain, and to a certain extent, the transactions can not be tampered with, traceable, open and transparent.
People are quick to discover the benefits of a USD-pegged stablecoin. It can be used as a measure of value, measuring the price of encrypted assets.
It can also be regarded as a substitute for the U.S. dollar, and it also has some functions of the U.S. dollar, such as a store of value. When the market is highly volatile, other high-risk assets can be exchanged for USDT to avoid risks. Moreover, when transferring between different trading platforms, using USDT as the carrier can not be affected by market fluctuations, which greatly improves the circulation efficiency of the certificate.
In a volatile market, Tether does enough "stable" business.
According to the data from Chainalysis, trading is the main demand for USDT. In the past six months, 97.9% of the newly minted USDT was directly transferred from Tether's official account to the trading platform.
In 2020, with the intervention of hedge funds and financial institutions, the demand for derivatives will increase. Emerging derivatives trading platforms such as FTX and Binance Futures have emerged, and various "USDT-denominated derivatives" have been launched, which are widely recognized by traders. Therefore, whether it is a trading platform, a market maker or a trader, a large amount of USDT is needed.
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Data source: https://messari.io/chart/stablecoin-market-cap-47A96D06
Emerging markets also brought strong demand. Due to the many uncertainties brought about by the epidemic, Google Trends data shows that the global market's attention to USDT has tripled in the past year, and the demand for offshore finance has risen rapidly. Emerging markets such as Eastern Europe, Africa, South America and East Asia have contributed many heavy users.
However, the transaction volume that the Omni protocol can handle is increasingly unable to support the surging volume of USDT, so most of the USDT on the chain is currently in the Ethereum network. In recent years, Tether is still on more and more other competing public chains ( Such as Tron, EOS, Algorand, etc.) and Layer 2 expansion network (OMG) issued USDT.
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Data source: https://www.theblockcrypto.com/data/decentralized-finance/stablecoins
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Controversies, crises and challenges of USDT
Although USDT has achieved a leading market position, it has always been accompanied by controversies and crises along the way, and will face new challenges in the future.
As a 1:1 anchor to the US dollar, the US dollar is used as a stable token for asset reserves. When it is not stable enough, it will be questioned from all sides.
On November 19, 2017, Tether was hacked and USDT worth $20,950,010 was transferred from the Tether wallet to an unauthorized Bitcoin address. Affected by this, the price of USDT fell below 1:1.
In October 2018, due to regulatory intervention, Noble Bank stopped its cooperation with Bitfinex and Tether and sought to sell, which triggered a sharp drop in USDT. Since then, Bitfinex, which could not find cooperation with traditional banks, had to find a payment company, Crypto Capital, to provide fiat currency cashing services.
In 2019, the New York Attorney General's Office (NYAG) sued Tether, Bitfinex and its parent company iFinex Inc., alleging that Bitfinex misappropriated $850 million worth of Tether's financial reserves to cover losses. Affected by this news, the price of USDT once fell to $0.966.
And the continuous additional issuance has also caused Tether to fall into a cycle of trust doubts of "wolf is coming".
In January 2018, an anonymous report appeared on the market. The report described that as of January 4, 2018, Tether had issued a total of 91 additional USDTs, and doubted whether Tether had sufficient reserves to support USDT manner.
In the face of doubts, in 2019 Tether's official website changed the statement that USDT was 100% backed by the US dollar and anchored 1:1 with the US dollar to be backed by reserves such as US dollars and equivalents.
However, the public's doubts about Tether's reserve assets have never stopped. In discussing the future of crypto tokens on the Tim Ferris Show with the co-founder of Ethereum hosted by Naval Ravikant, Vitalik Buterin highlighted something that could open Pandora's box "I think the Bitcoin ecosystem does have its own timing. Bombs like Tether are an example.”
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Commercial bills refer to unsecured short-term bills issued by financial companies or certain enterprises with relatively high credit. The reliability of commercial bills depends on the credit of the issuing company, which can be transferred by endorsement and discounted.
Why is Tether so dependent on commercial paper?
JPMorgan Chase released a research report "Tracking CP demand from stablecoin reserves". In the report, JPMorgan analysts believe that Tether's recently disclosed 65.39% of commercial paper will make them a bigger investment than most high-quality funds such as Apple, Google, Amazon, Microsoft and FaceBook, as well as cash-rich technology companies. holder of commercial paper. Moreover, compared with BTC, ETH and other volatile tokens, stable tokens, as a relatively safe haven, will benefit a lot in the volatile market.
There are other voices on the market too. KlipC analysts said the large holdings of commercial paper could indicate that Tether is struggling to find a bank willing to hold its cash as deposits. After all, as regulators such as the New York Attorney General's Office have questioned Tether's reserve holdings, and Tether has admitted to misrepresentations and irregularities in its recent settlement with the NYAG office, and paid $18.5 million with Bitfinex fine. And banks are also worried that if they provide banking services to Tether, they must bear the reputational risks that may arise.
Bernhard Mueller, who has worked as a security auditor and engineer in the blockchain field for 3 years, has a bolder conjecture. He believes that Tether can use USDT to purchase commercial papers with commercial affiliates to create a "100% Backed by reserves" scenario that puts most people at ease. Of course, there is currently no conclusive evidence for this conjecture, but it is also possible.
It's not without reason. People hold on to Tether's commercial paper, and the bottom line is that commercial paper is different from general cash equivalents. The market is flooded with various commercial papers, and commercial papers are also affected by the market with great volatility. After all, there was a time when GE's commercial paper was "like gold," but now, who wants GE's commercial paper?
To solve these doubts, in fact, as long as Tether officially announces the composition of its commercial paper. However, Tether refused to disclose relevant details about commercial paper and information on counterparties, and claimed that it was "in line with standard commercial practice." (This is in line with commercial practice).
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Tether Terms of Service: Tether can delay redemptions, or redeem securities and other assets (non-USD)
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Relying on its own first-mover advantage, Tether has always occupied a dominant position of 70% to 90% in the stable token market, and its daily traffic is equal to or even surpasses the single-day transaction volume of Bitcoin.
But the potential of the rising star should not be underestimated. According to data from CoinMarketCap, USDT’s market capitalization has barely budged over the past month. At the same time, Tether's closest competitor, USDC, has eaten away at 20.96% of the total market value of stable tokens, doubling its market share of less than 10% at the end of 2020. The BUSD issued by the centralized trading platform Binance accounted for 8.19%, and the stable token DAI collateralized by encrypted assets accounted for 4.22% of the total market value of the stable token.
Tether is also trying to reverse this situation due to controversy. According to decrypt, Tether is in the process of hiring a "reputation manager." The primary responsibilities of the position are to "be an advocate for the company in the social media space, engaging in conversations and answering questions where appropriate". It seems that no matter how many times the lessons of history are repeated, there will always be people stepping into the "same river" one after another. I don't know when Tether will realize that some voices cannot be eliminated by relying on public relations.
Can the USDT throne that is too big to fall continue to sit firmly? Will Tether's road to "transparency" continue? Will USDC praised by US regulators become a knife in the heart of USDT?
Winter is coming, time will answer everything.
