Original title: USDT's Survival Saga: Can the King of Stablecoins Weather the Storm?
Original authors: Chi Anh, Ryan Yoon, Yoon Lee
Original source: https://reports.tiger-research.com/p/usdts-survival-saga-can-the-king-eng
Translation: Tom, MarsBit
Abstract
Regulatory challenges: USDT remains the highest volume stablecoin, but escalating regulatory pressures (including being delisted in the EU due to the Markets in Crypto-Assets (MiCA) legislation) threaten its market dominance.
Transparency and Competition: Transparency issues and competition from compliant rivals (like USDC and DAI) may undermine USDT's trust and market share unless comprehensive auditing and compliance reforms are prioritized.
Global Growth Potential: Emerging markets and global adoption provide opportunities for USDT's growth, but its survival depends on how it navigates the regulatory environment and rebuilds confidence through innovation and transparency.
1. The Rise and Challenges of USDT
Source: rwa.xyz
Despite facing various challenges, USDT continues to play a vital role in the crypto market. Its daily trading volume has exceeded the total of Bitcoin, Solana, USDC, and Ethereum combined. This report analyzes how potential regulatory constraints in the EU may affect USDT, reviews its history and controversies, and explores USDT's future in an evolving cryptocurrency landscape.
2. The History of USDT: A Timeline of Growth and Controversy
Tether has been embroiled in controversy since its inception. The company claims that USDT is 100% backed by dollar reserves, but due to unclear asset management and refusal to verify its reserves, skepticism from the market and regulators persists.
2015: Bitfinex, the exchange associated with Tether, makes comments in response to an investigation by the Commodity Futures Trading Commission (CFTC), marking the beginning of regulatory scrutiny.
2017: Allegations arise questioning whether USDT is fully backed by reserves, raising concerns about market manipulation.
2019: An investigation by the New York Attorney General finds that Tether's reserves included uncollateralized loans, deepening market doubts. In the same year, authorities accuse shadow banking operator Reginald Fowler of fraudulently handling Tether funds.
2020: Federal prosecutors accuse a Ponzi scheme operator of using Tether, revealing the risks of fraudulent use of the currency.
2021: Tether reaches a settlement with the New York Attorney General, agreeing to increase transparency without admitting any wrongdoing. Additionally, the CFTC fines Tether $41 million for making false statements regarding dollar reserves.
2022: U.S. prosecutors in Manhattan issue a subpoena to Tether for more information about its reserves, increasing scrutiny of its financial operations. Meanwhile, a U.S. senator criticizes Tether for failing to attend a key Senate hearing on cryptocurrency regulation.
2023: Tether faces a new round of investigations by the U.S. Department of Justice, related to alleged fraudulent activities with the Secret Service, raising new concerns about its compliance practices.
2024: Coinbase delists USDT in Europe, citing compliance requirements related to MiCA regulations.
Despite facing controversies, USDT continues to hold a dominant position in the market. Strong demand from Asian users, particularly on Binance, has helped solidify its leading position. When regulatory threats do not translate into actual sanctions, market concerns about USDT's risks diminish. Tether's effective response to regulatory challenges has bolstered market confidence. By the end of 2024, USDT's market capitalization reached $83 billion.
The EU's MiCA regulations pose unprecedented challenges to USDT. Unlike the fragmented regulatory environment in the U.S., the EU has implemented comprehensive and stringent standards for stablecoins. While Tether has successfully navigated challenges in the past, MiCA brings unprecedented scrutiny to the company.
3. Impact of EU MiCA Delisting: Potential Consequences and Market Changes
Since the MiCA regulations took effect on December 30, 2023, they have reshaped the European cryptocurrency market. These rules pose significant challenges for Tether. Although USDT remains legally compliant, Coinbase's delisting decision has exacerbated market concerns.
MiCA categorizes crypto assets into two types: electronic money tokens (EMT) and asset-referenced tokens (ART). The legislation places stablecoin issuers under the supervision of the European Banking Authority. Issuers must now obtain licenses to continue operating.
Collateral asset custody requirements are the most challenging licensing requirements. MiCA mandates that stablecoin issuers hold most collateral at European banks. Currently, USDT holds 83% of its reserve assets in U.S. Treasury securities and cash equivalents. Transferring these assets to European institutions would pose significant risks. The EU's €100,000 deposit protection limit complicates the issue. Large deposits at third-party banks may threaten Tether's stability.
Tether's unwillingness to comply with MiCA rules could put its trading in Europe at risk. This may lead to reduced liquidity and market fragmentation.
Source: Chainalysis
According to Chainalysis's 2024 report, stablecoins account for over 50% of the cryptocurrency trading market in Europe. Such a high market share means that regulatory changes could disrupt the entire market. Coinbase's decision to delist USDT demonstrates the real impact of these uncertainties.
A potential exit of USDT from the market would pose problems for the entire market. Smaller exchanges may lose access to critical liquidity pools, limiting their trading. Decentralized finance (DeFi) projects using USDT could face service limitations in the EU. Large institutions may turn to other stablecoins, but none can match USDT's liquidity and reach.
The regulatory environment adds complexity to the situation. While there is no law explicitly banning USDT, ambiguous requirements have led to divergent market reactions. Major exchanges like Binance and Crypto.com have chosen to continue offering USDT, relying on MiCA's 'grandfather clause' for temporary regulatory exemption.
The impact of EU regulation extends beyond its borders. Western countries often make unified adjustments to financial regulations to maintain market consistency. An USDT ban triggered by MiCA regulations could lead Western nations to impose similar restrictions, profoundly affecting the global cryptocurrency market.
The differing implementation timelines among EU member states also present additional challenges. France allows an 18-month adaptation period, while the Netherlands requires compliance within 6 months. These inconsistent timelines make it more difficult for Tether to maintain unified operations in the EU market, potentially undermining its position as a leading stablecoin provider.
4. The Survival Test of USDT: Can It Continue to Reign as the King of Stablecoins?
USDT faces the greatest challenges from regulation and new competitors, as the stablecoin market is evolving. While its resilience stems from unparalleled adoption rates and liquidity, several factors may determine its future trajectory:
4.1 Improving Transparency and Compliance
Currently, Tether releases reserve reports quarterly. The 2024 disclosures show that 85% of its assets are cash and cash equivalents, with the remainder distributed across other investments. However, MiCA's stringent standards require audits that are more comprehensive than Tether's current practices.
Companies are taking concrete steps to drive compliance across different markets. To meet European requirements, Tether is collaborating with Quantoz, which is compliant with MiCA, to establish fiat currency issuance. At the same time, the company has also obtained a DASP license in El Salvador, demonstrating its commitment to meeting regional regulatory requirements.
4.2 Political Strategies in the Trump Era
Tether is advancing its plans to enter the U.S. market. CEO Paolo Ardoino announced in January 2025 that the expansion will proceed while adhering to U.S. regulations. This commitment was supported by Tron founder Justin Sun's investment of $75 million in World Liberty, given Tron’s close relationship with Tether.
Tether's proactive regulatory strategy reflects USDT's key role in the market. Its substantial holdings of U.S. Treasury securities make it an important participant in the U.S. economy. Aligning with U.S. governmental interests provides a basis for potential institutional protection in the future.
Tether has adopted a strategic market entry approach. Instead of directly complying with strict European regulations, the company has chosen to leverage its relationship with the U.S. government. However, this strategy also carries risks. The Trump administration's 'America First' policy may favor domestic stablecoin providers like USDC.
These political dynamics suggest that the stablecoin market may experience regional differentiation. USDT is likely to maintain its lead in Asia, especially within Binance-dominated trading markets. Meanwhile, USDC may dominate Western markets through the influence of Coinbase. This regional split reflects how geopolitics is reshaping the global stablecoin landscape.
5. Conclusion: The Future Path of USDT and the Crypto Ecosystem
MiCA marks a turning point for USDT and the entire stablecoin market. Although the EU's potential delisting decision threatens USDT's liquidity, this challenge may also prompt Tether to adapt and solidify its global position.
Whether USDT can continue to maintain its leadership depends on transparency and compliance. Tether's recent initiatives—partnering with Quantoz in Europe and obtaining a Digital Asset Services Provider (DASP) license in El Salvador—demonstrate its adaptability. Next, Tether must expand these efforts globally to meet regulatory requirements in different regions.
Geopolitical factors will also play an important role in the future development of USDT. Its substantial holdings of U.S. Treasury securities and its focus on the U.S. market position it as a key market participant. However, the Trump administration's 'America First' policy may favor domestic competitors like USDC in the Western market. In Asia, USDT relies on Binance's strong position and high demand to ensure its important role in emerging markets.
Tether's success in 2025 will depend on its ability to adapt flexibly within various regional regulatory frameworks while relying on its extensive market adoption. Focusing on improving transparency, strengthening compliance, and establishing key partnerships will help it withstand future regulatory challenges.
Ultimately, USDT's development history illustrates how the crypto market evolves with the maturation of global regulation. Actively embracing these challenges can not only solidify USDT's market position but also promote the advancement of standards for digital financial stability.
