Author: flowie , ChainCatcher
Editor: Marco, ChainCatcher
Last week, Tether released its Q2 2024 financial report. Tether's Q2 net operating profit reached US$1.3 billion, and its profit in the first half of 2024 was as high as US$5.2 billion, a record high.
The profit of half a year is 5.2 billion US dollars, which is equivalent to nearly 30 million US dollars a day, which is beyond the reach of many listed companies. However, Tether, which has made a lot of money, may not be as glorious as the financial report shows.
On June 31, the EU's new MiCA law came into effect, which means that Tether's stablecoins are officially facing mass delisting in Europe. Crypto exchanges such as Binance, OKX, Uphold, and Bitstamp have announced the delisting of almost all USDT trading pairs in Europe due to the law.
Competitor Circle has obtained MiCA legal permission to sell its USDC and EURC stablecoins across Europe.
Europe is the region with the largest scale of crypto adoption. According to a recent study released by CoinWire, Europe’s cumulative cryptocurrency trading volume accounts for 37.32% of the global market.
Circle is taking away a significant market share from Tether. According to the CCData report, after the European regulations came into effect, the USDC trading volume on centralized exchanges increased by more than 48%.
Since its establishment in 2014, Tether has experienced many crypto-currency crashes and regulatory FUD, and has now grown into a behemoth. Will Tether be "too big to fail" in the future, or will it still be unable to escape the risk of being "out"?
USDC transaction volume has surpassed USDT many times
As the bull market begins, the market value of stablecoins continues to grow. According to the latest report released by CCData Research, as of the end of July, stablecoins have risen for 10 consecutive months.
USDT, as the largest stablecoin by market value, is also growing, dominating nearly 70% of stablecoin transactions. But one signal that cannot be ignored is that USDC, USDT's current biggest rival, has seen its market value and trading volume increase significantly since its monthly trading volume exceeded USDT for the first time in December 2023. In particular, USDC's trading volume has significantly exceeded USDT many times.
Data jointly released by Visa and Allium Labs show that on March 24, 2024, USDC's trading volume at the close of the week was almost five times that of USDT. On April 21, 2024, USDT's weekly trading volume shrank to $89 billion, while USDC increased to $455 billion.
According to Kaiko’s report analysis, the growing popularity of USDC may be due to the increasing adoption and preference of users for regulated stablecoins.
USDC's relatively compliant and regulated attributes also make it the first choice for large institutional clients to enter the crypto field.
This year, BlackRock launched the tokenized fund BUIDL, which is pegged to the US dollar at a 1:1 ratio. Holders can obtain a "security" that is similar to an interest-bearing stablecoin. In order to ensure that investors can purchase/redeem stablecoins 24/7/365, BlackRock chose to cooperate with Circle to establish a USDC liquidity pool controlled by a smart contract for investors.
After the European regulations came into effect in July, USDC trading volume surged again. CCData data shows that after centralized exchanges removed the European USDT trading pairs, the trading volume of USDC trading pairs increased by 48.1% to US$135 billion, a record high.
In addition to growth opportunities in centralized exchanges, the growth of USDC on some active public chains this year cannot be ignored.
Last August, Circle received investment and support from Coinbase, which announced that it would launch it on six new chains.
On the Coinbase-owned Base public chain, USDC accounts for 91% of the total stablecoin supply. Base does not support USDT. Data from June 18 showed that the supply of USDC on the Base chain had increased by more than 1,000% in the past 90 days.
On the Solana chain, Bankless shared a set of data in the X platform, "USDC accounts for about 70% of the total stablecoin supply on the Solana chain. This week, the trading volume of USDC and USDT on Solana is 19:1."
Bankless said the reason for USDC’s dominance on Solana is due to Circle and the Solana Foundation’s strategy to incentivize developers and promote integration with trading platforms.
For example, platforms such as Solend Protocol and Superteam in the Solana ecosystem provide developer rewards in the form of USDC. The Cross-Chain Transfer Protocol (CCTP) launched by Circle on Solana and Circle's Web3 service rewards are all driving the growth of USDC on the Solana chain.
After the European crisis, are compliance issues still a potential bomb?
The FUD of Tether due to regulatory compliance issues has never stopped.
In addition to the European "MiCA" bill, the "Lummis-Gillibrand Payment Stablecoin Act" proposed by US Senators in April this year was also pointed out by many institutions as a threat to Tether.
The Lummis-Gillibrand Payment Stablecoin Act requires that stablecoins with an issuance volume of more than $1 billion be subject to the same strict supervision as banks, and encourages more banks to participate in the stablecoin market.
Rating agency S&P Global pointed out that most of the current issuers of US dollar stablecoins, including USDT, which has the largest market share, are not subject to US regulations. However, if the bill is finally passed, it may prompt more banks to enter the stablecoin market and affect Tether's dominance.
A recent report from JPMorgan also showed that the US has strengthened its cryptocurrency regulation in recent months. Before the upcoming presidential election, the Payment Stablecoin Act is most likely to be passed, which will benefit compliant US stablecoins and threaten Tether's dominance.
The Deutsche Bank report also questioned Tether's operational stability and transparency.
Although Tether's trading activities mainly occur in emerging markets outside the United States, the United States is still one of the most important markets in the crypto field. If Tether does not respond, it may miss this market.
This may be based on an understanding of the trend of regulatory compliance or on competitive considerations. This year, several founders of crypto companies have warned that the next regulatory hammer may fall on Tether.
In May of this year, Ripple CEO Brad Garlinghouse revealed on a podcast that since the collapse of FTX and the imprisonment of former CEO SBF, and the recent conviction and sentencing of former Binance CEO Changpeng Zhao (CZ), the next regulatory target of the US SEC is Tether.
Brad was then counterattacked by Tether's CEO Paulo Ardoino, and the two engaged in a "war of words" for several days.
Ripple also announced the launch of a stablecoin pegged to the US dollar this year. Paulo believes that Ripple, as a competitor, is maliciously slandering Tether.
But Brad insisted that it was not a deliberate attack. He believed that the US government has made it clear that it wants to strengthen its control over issuers of stablecoins backed by the US dollar. Therefore, Tether, as the largest participant, is among their targets of attention.
In March of this year, after Arthur Hayes' family office Maelstrom invested in the new stablecoin protocol Ethena, Arthur Hayes also published a long article on his personal blog explaining why the Federal Reserve, the U.S. Treasury Department and large U.S. banks with political connections want to destroy Tether.
Arthur Hayes believes that Tether's full-reserve banking model runs counter to the Federal Reserve's stated goal of reducing the amount of bank reserves to curb inflation.
And Tether is too big. Tether is now one of the largest holders of U.S. Treasuries. The growth of Tether and similar stablecoins serving the cryptocurrency market poses a risk to the U.S. Treasury market.
Furthermore, Tether is so profitable that it will attract competition from banks.
A speculative balance sheet and income statement prepared for Tether by Maelstrom analysts shows that Tether's revenue per employee is $62 million. The eight "too big to fail" banks in the United States, represented by JPMorgan Chase, will find it difficult to match Tether's profitability.
It is expected that in the next year, in addition to the United States, important crypto regions such as Hong Kong, Singapore, Japan, the United Kingdom, and the United Arab Emirates will successively introduce comprehensive stablecoin regulatory rules.
As global regulatory laws and regulations are gradually implemented, it may be difficult to determine for the time being whether Tether is really facing the risk of being eliminated.
Some believe that the US government has no reason to cause trouble for Tether.
Glassnode analyst Checkɱate said that the USDT issued by Tether is essentially equivalent to the US CBDC. He believes that the existence of Tether is tacitly approved by the US government. "USDT absorbs the US government's treasury bonds, thereby supporting the US finances."
In dealing with the relationship with government regulators, Tether CEO Paulo once stated in his rebuttal to Brad that Tether has been cooperating with law enforcement agencies in different countries.
339 requests blocked in the past 3 years, 158 of which were in cooperation with U.S. law enforcement.”
Some people believe that, like the U.S. dollar, how USDT is abused has little to do with the issuing institution. As long as Tether cooperates with law enforcement agencies to freeze it, the danger is not as high as imagined.
Tether has not yet made a clear statement on how to deal with the withdrawal of the EU and potential threats from other regions. However, Tether may be trying to get rid of the unilateral control of the United States.
In June of this year, Tether made a strategic investment of US$18.75 million in XREX Group, a compliant blockchain financial institution.
XREX Group founder Huang Yaowen revealed in a media interview that after this investment, Tether and XREX will launch XAU1 through cooperation with the Unitas Foundation.
XAU1 is a unit currency that is backed by excess reserves of Tether Gold (codenamed XAUt) and pegged to the value of the US dollar. It provides a robust financial alternative for stablecoin users and is also a hedge against inflation.
The purpose of launching XAU1 is to gradually make the dollar neutral while maintaining the dollar pricing that everyone is used to, and not be unilaterally controlled by the United States. "Because Tether knows clearly that the money earned through the interest on US debt is controlled by the Federal Reserve, not itself, so 80%~85% of the money earned is used to buy gold from the Swiss gold mine."
In addition, Tether is also seeking business growth beyond stablecoins, expanding into multiple fields such as Bitcoin mining, AI and education.
In response to regulatory pressure, Tether is also increasing its lobbying expenses. According to data from the nonprofit OpenSecrets, Tether's parent company iFinex increased its lobbying spending by more than 150% in 2023.
There is no shortage of predators for the “fat meat” of stablecoins
In addition to regulatory risks, Tether has never lacked challengers.
At the beginning of last year, BUSD, which had been the third largest stablecoin, withdrew from the historical stage overnight due to regulatory pressure from the US SEC. However, the stablecoin market soon welcomed several players to fill its position.
Web2 payment giant PayPal launched the stablecoin PYUSD, and the stablecoin FDUSD, which is regarded as Binance's alternative to BUSD, also quickly emerged. In addition, old blue-chip DeFi such as Curve, Aave, and Frax are actively launching native stablecoins; some new forces of interest-bearing stablecoins have also emerged, leveraging LSD and RWA.
This year, BlackRock, mentioned above, launched BUIDL, a tokenized fund similar to interest-bearing stablecoins. To some extent, it also saw the lucrative business of stablecoins.
In addition, some innovative stablecoin protocols are still rising strongly this year. Ethena's USDe is a new stablecoin supported by Ethereum derivatives. It was launched on the mainnet in February. In half a year, its market value exceeded US$3 billion, becoming the fourth largest stablecoin after Dai.
The investment institutions behind Ethena are like a novel. In February this year, Ethena received a $14 million financing led by Dragonfly, Brevan Howard Digital and Maelstrom, the family office of BitMEX founder Arthur Hayes, and participated by PayPal Ventures, Franklin Templeton, Avon Ventures, Binance Labs, Deribit, Gemini and Kraken, with a valuation of $300 million. In July last year, Ethena also received $6.5 million led by Dragonfly.
This may also explain why some market players and capital believe that although Tether and Circle currently occupy almost most of the stablecoin market, the stablecoin landscape still has huge potential for adjustment in terms of compliance, centralization risks, and how profits are distributed to users, providing disruptive opportunities for latecomers.
