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On the day USDT reached a milestone $100 billion market cap, the company behind the stablecoin, Tether, announced recovery plans for holders if a blockchain was ever disrupted.
The $100bn market cap is a testament to the value of stablecoins in both the cryptocurrency realm and across TradFi, but it, at times, has been a rocky road to reach such widespread adoption.
On March 4, Tether released a recovery process to protect users’ funds if a blockchain is disrupted, as it attempts to allay concerns about the risk of using USDT.
USDT is now the third largest cryptocurrency by market cap, behind Bitcoin and Ethereum?— with BTC itself narrowing in on its own ATH.
Key Takeaways
Tether tokens are available on 14 blockchains and have become especially popular on the Tron network, where low transaction fees are encouraging users in certain countries to buy and sell USDT as an alternative to devalued local currencies.
Tron has overtaken the Ethereum chain for the largest share of USDT in circulation, accounting for $50.4 billion compared with $40.6 billion on Ethereum, according to DeFi Llama data.
USDT Protection if a Blockchain Goes Offline
The new recovery tool aims to enable users to maintain access to their Tether stablecoins if the blockchain they are hosted on goes down.
The company said:
“In the event that any blockchain on which USDT is available becomes disrupted, Tether has developed and will implement its proactive measures to ensure uninterrupted accessibility for our holders, and safeguarding users’ accessibility to their USDT.”
Users would be able to migrate their USDT tokens to another blockchain through a web interface or command-line tools by cryptographically signing a migration request to verify ownership.
The web-based option supports popular browser extension wallets and hardware wallets, while the command-line interface allows users to enter their private key directly, enabling them to sign the request using an open-source script on their local machine.
Why Is USDT Surging?
Interest in crypto has surged since the approval of several bitcoin exchange-traded funds (ETFs) by the US Securities and Exchange Commission in January, in turn increasing demand for USDT as an on-ramp and off-ramp to convert funds to and from cryptocurrencies such as bitcoin.
Trading volumes in investment products reached a record of over $30 billion last week, driven by ETF demand, according to digital asset manager CoinShares, at times representing 50% of global Bitcoin daily trading volumes on trusted exchanges.
Total assets under management (AUM) reached $82.6 billion, approaching the all-time high of $86 billion at the peak of the market in early November 2021.
Fiat currency-pegged stablecoins such as Tether typically mint (or create) new tokens when users submit a transaction to convert their fiat at a value of 1:1.
So if a user requests to buy $100 worth of a stablecoin, 100 tokens are minted.
But Tether recently authorized a mint of $1 billion in USDT on the Ethereum blockchain to replenish inventory in preparation for an increase in issuance requests and swaps between blockchains, according to a post on X, formerly Twitter, by Tether’s chief executive officer, Paolo Ardoino.
PSA: 1B USDt inventory replenish on Ethereum Network. Note this is an authorized but not issued transaction, meaning that this amount will be used as inventory for next period issuance requests and chain swaps.https://t.co/Y1bqxZglgR
— Paolo Ardoino ???? (@paoloardoino) March 3, 2024
Ardoino expects crypto demand to increase as more funds and companies invest in Bitcoin now that the ETFs give them the legitimacy that they need to convince accountants and auditors they should hold some on their balance sheets.
Ardoino said in a panel discussion last week: “We are going to see a wide range of hedge funds and pension funds that will start to add Bitcoin to their portfolio now that the Bitcoin ETF is out there.”
“More and more fund managers are interested in starting to add up to 5% of their portfolio into Bitcoin.
But ultimately one of the most interesting things is companies more and more will start keeping part of their unused balance sheet in Bitcoin… and that will grow over time.”
Stablecoins are also at the forefront of retail interest in crypto.
Intergovernmental blockchain expert Anndy Lian, speaking to Techopedia about Tether, said:
“Tether is a remarkable achievement in the cryptocurrency space, as it provides a stable and convenient way to use fiat currencies on the blockchain.
“USDT as stablecoins that are pegged 1-to-1 with a matching fiat currency are widely adopted across major exchanges, OTC desks, and wallets, and have surpassed Bitcoin in terms of trading volume.
“USDT is a sign of how useful stablecoins are in the world, as they bridge the gap between the traditional and the digital financial systems.
“They offer the benefits of both worlds: the stability and familiarity of fiat currencies, and the speed and transparency of the blockchain. It also reduces the volatility and complexity that are often associated with cryptocurrencies, making them more accessible and appealing to a wider audience.
Tether’s reliance on a “trust me” status has raised doubts and suspicions among some investors and observers, who question the legitimacy and sustainability of Tether’s operations.
“Fast forward to today, Tether has refined its operations and is the widely used stablecoin in the world now. In my humble opinion, doubts about them have gone down a lot.”
“Stablecoins are becoming increasingly important,” according to Dina White, General Counsel at Zodia Markets, a digital asset brokerage and exchange platform.
“We are seeing this at Zodia Markets, particularly due to cross-border payment efficiencies and cost-savings. And they could become a widespread means of retail payment.”
Tether Strives for Legitimacy Amid Controversy
Tether’s growing popularity among crypto users extends to criminal groups, which are increasingly using USDT to transfer and launder money.
A recent United Nations Office on Drugs and Crime (UNODC) report on organized crime in East and Southeast Asia (PDF) found that “USDT on the TRON155 blockchain has become a preferred choice for regional cyberfraud operations and money launderers alike due to its stability and the ease, anonymity, and low fees of its transactions.”
The report added: “Between September 2022 and September 2023, a recent fund audit of USDT-based transactions by one independent blockchain data analysis company found transactions totaling 17.07 billion USDT connected to underground currency exchanges, illegal commodity trades, unlawful collection and payment processes, and various criminal activities.
“Law enforcement and financial intelligence authorities in East and Southeast Asia have also reported USDT among the most popular cryptocurrencies used by organized crime groups, demonstrated by a surging volume of cyber fraud, money laundering, and underground banking-related cases.”
Tether responded to the report with criticism that “the UN’s analysis ignores the traceability of Tether tokens and the proven record Tether has of collaborating with law enforcement.
“We are disappointed in the UN’s assessment that singles out USDT highlighting its involvement in illicit activity while ignoring its role in helping developing economies in emerging markets, completely neglected by the global financial world simply because servicing such communities would be unprofitable for them.
“Rather than focusing solely on risks, the UN should also discuss how centralized stablecoins can improve anti-financial crime efforts.”
Tether stated that it collaborates with the US Department of Justice (DoJ), the Federal Bureau of Investigations (FBI), and the US Secret Service (USSS) to monitor USDT tokens, ensuring that traceability surpasses “traditional banking systems that for decades have been the vessel for laundering substantial sums proven by the fines that have been levied on them.”
Tether has also developed a tool to monitor secondary markets with blockchain analysis firm Chainalysis.
“Tether tokens, using public blockchains, make it possible to meticulously track every transaction, making it an impractical choice for illicit activities. This is evident in our freezing of more than US$300 million within the last few months, showcasing our commitment to combating the criminal use of cryptocurrencies,” the statement added.
Is Growing Tether Usage Supported by Real Value?
Launched in 2014, Tether has long been controversial because of speculation about whether the full value of USDT in circulation is backed by real collateral.
In 2021, Tether paid fines of $41 million to the Commodity Futures Trading Commission (CFTC) and $18.5 million to the New York Attorney General’s Office for falsely claiming that USDT was backed by US dollars on a 1:1 basis between 2016 and 2019.
The company now publishes daily reserve data, monthly reports, and quarterly reviews breaking down its reserves, which it says are independently audited.
Its most recent report for December 2023 showed total cash holdings of $82.1 billion, $3.5 billion in precious metals, $2.8 billion in Bitcoin, $3.8 billion in other investments, and $4.8 billion in secured loans, along with $44 million in corporate bonds.
The company said:
“This is in response to the community’s past expressed concerns about this part of the portfolio.”
Cantor Fitzgerald CEO Howard Lutnick told Bloomberg in January that his company has reviewed some of Tether’s balance sheet as its custodian and confirmed it holds the assets it claims to hold. Cantor Fitzgerald manages “many many” of Tether’s assets, Lutnick said.
The Bottom Line
Tether has survived several cryptocurrency market crashes, including the demise of the Terra (UST) algorithmic stablecoin and competing stablecoin USDC briefly losing its US dollar peg.
The company behind USDT continues to make attempts to prove the stablecoin’s legitimacy and expand its utility by launching it on more blockchain networks. Its new recovery tool aims to reduce users’ and potential investors’ concerns about the potential loss of tokens if a network fails.
However, crypto skeptics will continue to question whether USDT is a legitimate, sustainable asset, particularly as institutional and retail interest grows.
