Original｜Odaily Planet Daily (@OdailyChina)
Author: Wenser (@wenser2010)
On October 2, Paolo Ardoino, CEO of USDT issuer Tether, said, “USDT may have been just a cryptocurrency at first, but now it is the most used digital dollar in the world.” He expressed his pride in USDT’s current superior market position and diversified application scenarios.
As the person behind the scenes of the "largest stablecoin in terms of market value of cryptocurrency", he certainly has reason and confidence to say such words. After all, as a "cryptocurrency cornerstone product", stablecoins have always been regarded as the "blood of cryptocurrencies".
After the UST algorithmic stablecoin issued by Terraform Labs collapsed in May 2022, mainstream stablecoins such as USDT and USDC, which are linked to U.S. Treasury bonds, have gradually become "cash cow businesses" in the industry that create stable cash flows, attracting more and more attention. The market also uses the flow of stablecoins and the growth of supply as one of the indicators for judging the cycle.
Odaily Planet Daily will briefly interpret USDT and its issuer Tether in this article for readers' reference.
Tether's expansion: starting with cryptocurrency, but not just cryptocurrency
As Tether CEO Paolo Ardoino said, USDT was originally just "a cryptocurrency", but with the development of time, its scope of use has long exceeded the scope of "cryptocurrency" and has become a "widely used digital dollar". Specifically, it has been widely used in cross-border payments, daily consumption, cryptocurrency exchange and other scenarios.
Since 2014, USDT has been growing steadily. In August 2021, the market value of the stablecoin sector exceeded the $100 billion mark for the first time, among which USDT ranked first with a market value of over $65 billion; according to the latest data from the IntoTheBlock website, the total market value of USDT has exceeded $126 billion, setting a new record (Odaily Planet Daily Note: Tether's official website shows that the total net issuance of USDT is $119,640,575,156.23).
On July 31 this year, Tether released its second quarter financial report for 2024. The data showed that its profits in the first half of 2024 hit a record high of US$5.2 billion, and its net operating profit reached US$1.3 billion, the best performance ever. In addition, Tether's holdings of U.S. Treasury bonds exceeded US$97.6 billion, also a record high. According to previous news from the Wall Street Journal, the amount of funds flowing through the Tether network in 2023 was almost as much as that through the global payment giant Visa card, and its full-year net profit reached US$6.2 billion. In other words, Tether's profits in the first half of 2024 are close to its full-year profits in 2023. In comparison, the net profit of common shareholders of asset management giant BlackRock last year was only US$5.5 billion. It is no wonder that many insiders in the crypto industry exclaimed: "Stablecoins are really a stable and profitable 'good business'!"
IntoTheBlock website data
Specifically, USDT’s usage scenarios include the following:
Cryptocurrency Markets: The “General Equivalent” of Digital Assets
According to information on Tether's official website, exchange users and individual users are its main customer groups. After all, Paolo Ardoino himself has always been the CTO of the crypto exchange BitFinex, and this title is still listed in the profile of his personal account; and USDT, as the "general equivalent" of cryptocurrency, has become a common medium in daily transactions.
USDT Main Partner Exchanges
Regions with severe inflation: the best "national currency alternative"
With the development of the world economic situation, some countries and regions are suffering from serious inflation. Based on the "legacy" of Bitcoin's "peer-to-peer payment system", USDT has become a "national currency substitute" in many inflationary regions.
Tether CEO Paolo Ardoino also said in an interview with the media: "In countries such as Argentina and Turkey, USDT provides a lifeline as an alternative to volatile national currencies. Before USDT was widely adopted, people in inflation-ridden countries had to turn to the black market to obtain US dollars (Odaily Planet Daily Note: Because the global economic system is denominated in US dollars and the US dollar is relatively resistant to inflation)."
He also mentioned: “USDT works much better outside the United States. In the United States, there are 15 different transmission layers for the US dollar. You have banks, credit cards, debit cards. You have Venmo, PayPal, Cash App, etc. But who needs a dollar? Imagine a person living in Haiti who makes $1.34 a day. How can they pay a $5 transaction fee? These markets can’t afford to pay $5 or $6 per transaction on Ethereum or other chains.”
This is one of the reasons why TRON has become the blockchain network with the most stablecoin transactions. The latest data shows that the total authorized amount of USDT on the TRON network is as high as 61.8 billion US dollars, and the total authorized amount on Ethereum is close to 55 billion US dollars.
By the way, thanks to stablecoin transactions and the TRON ecosystem Meme coin craze previously boosted by SunPump, the TRON network's total revenue in Q3 reached a record high of US$577 million, an increase of 43% compared to Q2 this year.
USDT issuance information
International trade: a "payment tool" recognized by many parties
As an important part of the global economic system, international trade (including cross-border e-commerce and other industries) has an equally urgent need for fast payment and a broad market, and USDT has become one of the "payment tools" recognized by many parties in this field to some extent. After all, compared with the global Swift bank wire transfer system with complex processes, high costs and many rules, USDT's advantages are undoubtedly very obvious: efficient, convenient, stable and lower cost, and the relevant advantages are also explained on the Tether official website.
Of course, there are pros and cons. USDT's convenience, anonymity, and high-speed circulation also provide a "pillow on the hotbed" for the gray and black industries. As mentioned in the Wall Street Journal before: "Although Tether will review the identity of direct customers, its huge secondary market is unregulated. According to a report by the United Nations in January this year, USDT is the first choice for money laundering in Southeast Asia."
Reasons for merchants to choose USDT
Tether’s Business Model: The Cryptocurrency Version of the Federal Reserve
Looking closely at the business model behind Tether and its stablecoin USDT, its revenue model and profit sources mainly come from the following aspects:
U.S. Treasury yields: U.S. Treasury bond interest income
According to the data on U.S. debt holdings, as of July this year, Japan's U.S. debt holdings were $1,115.7 billion; China's U.S. debt holdings were $776.5 billion; South Korea's U.S. debt holdings were $122.7 billion; and Germany's U.S. debt holdings were $101.6 billion. In other words, if Tether were a country, its U.S. debt holdings would be comparable to Germany's and close to South Korea's.
Tether CEO Paolo Ardoino has previously stated that U.S. debt provides support for USDT, and if USDT holders want to cash out, they can easily exchange it for U.S. dollars. At the same time, interest will also flow into the Tether treasury. He added: "We (equivalent to) increasing the elasticity of U.S. dollar ownership, so now no country or decision maker can sell hundreds of billions of U.S. Treasury bonds at one time. USDT and Tether are the best friends of the U.S. dollar."
Previously, it also stated in August: Due to rising interest rates, Tether has made extremely high profits in the past two years, and can currently earn 5.5% profit from reserves. In the past 24 months, Tether has accumulated a profit of approximately US$11.9 billion. According to Tether's Q2 quarterly report, Tether ranks 18th among countries holding U.S. debt.
Redemption fees: handling fees are also a source of profit
According to Tether's official website, users need to meet the requirements of "minimum amount of $100,000, 0.1% fee each time" when redeeming dollars. The cost of each operation is $1,000 or 0.1% (whichever is greater). In addition, users who create an account directly on Tether's official website will need to pay a verification fee of $150, which will be used as a deposit and is non-refundable. It has to be said that the "stability" of the stablecoin business is not only reflected in the 1:1 anchoring of the token and the US dollar, but also in the relatively stable source of its business profits - it is still an irrefutable truth in the cryptocurrency industry - "handling fees are the best business model."
Return on investment: Generous and aggressive investors
In addition to the above business income, as a company with annual profits of billions of dollars, Tether is also a "frequent" investment "financier".
Previously, Tether CEO Paolo Ardoino said in an interview, “Tether is well-funded and is currently entering unfamiliar new fields such as artificial intelligence. The plan is to challenge Microsoft, Google and Amazon. The company has acquired a majority stake in neural implant technology startup Blackrock Neurotech and invested in data center operator Northern Data Group, whose infrastructure is used to train AI models.”
It is worth mentioning that although Tether has not yet seen returns on these two investments, its "middlemen" have already reaped considerable returns. For details, please refer to: (Wall Street Journal: Behind Tether's $1.5 billion investment, "middlemen" made a fortune) article, which mentioned: Christian Angermayer, a technology investor and entrepreneur entrusted by Tether to invest, invested approximately $1.5 billion in the two companies in which he held shares, and he also earned a considerable commission from the transaction.
Moreover, Tether's investment portfolio is not limited to hot technology fields such as AI. It has previously invested $100 million in Latin American agricultural giant Adecoagro. Prior to this, Tether has expanded its business to green energy, Bitcoin mining, artificial intelligence and education programs. For example, it has reached a cooperation with digital payment platform Rezo Money to promote blockchain education in Guinea; Thailand, Indonesia and other regions also have corresponding education promotion initiatives.
In the field of cryptocurrency, its most recent move was a strategic investment of $1.5 million in Sorted Wallet, a platform that aims to promote financial inclusion in Africa and South Asia. It can be seen that Tether, as a "pioneer in cryptocurrency user education," is extremely concerned about "potential markets" other than the European and American markets.
Other income: Returns from gold reserves, income from cryptocurrency investments
In addition, according to the official website, Tether's reserve assets also include precious metals such as gold and cryptocurrencies such as Bitcoin, which can also provide it with certain asset returns and benefits to a certain extent. It is worth noting that the current reserve asset details have changed significantly compared to the reserve asset details first released in March 2021, which also indirectly reflects Tether's changes in asset reserves in recent years:
The details of Tether's reserve assets on March 31, 2021 are as follows:
75.85%: Cash and cash goods, other short-term deposits, commercial paper
12.55%: Secured loans
9.96%: Corporate bonds, funds, precious metals
1.64%: Others (including digital tokens)
Tether's latest reserve report information
It can be said that Tether, which holds the right to issue USDT, is under regulatory pressure from different countries and regions. However, given its current influence and transcendent market position, it is no exaggeration to regard it as the "Federal Reserve in the cryptocurrency field."
Tether’s future path: Becoming the super hegemon among “one superpower and many strong powers”
Of course, the stablecoin business has such a strong ability to attract money that it has naturally attracted the attention of a number of institutions and platforms. In addition to Circle and its USDC, another stablecoin issuer that followed closely behind, there are also many stablecoin products on the market.
Overview of stablecoin categories
According to the information mentioned in an article previously published by Messari researcher Addy (Overview of the products and features of the stablecoin market), the stablecoin landscape can currently be roughly divided into dominant players (i.e. USDT and USDC), centralized alternatives, government-backed stablecoins, decentralized stablecoins, lending stablecoins, and new design stablecoins including DYAD.
Source material
Rivals old and new vie for supremacy
With the approval of Bitcoin spot ETF and Ethereum spot ETF this year, the compliance and mainstreaming process of the cryptocurrency industry has achieved a milestone. Stablecoins, as an important infrastructure product, have also attracted a number of new and old players to gradually increase their investment.
First, MakerDAO gradually converted DAI to USDS, and then PYUSD supported by PayPal flourished on Solana and Ethereum networks. On the other hand,
Established platforms such as Robinhood and Revolut have also joined the game. However, Robinhood later denied speculation that the company was entering the stablecoin market and confirmed that Robinhood (HOOD) had no plans to launch its own stablecoin in the short term. Johann Kerbrat, vice president and general manager of Robinhood Crypto, said: "At present, we do not have any immediate plans to launch a stablecoin. Rumors are always interesting, but we don't really spend time on it." According to sources, Robinhood is "exploring" a stablecoin, but the specific details have not yet been determined.
Defilama Top 16 Stablecoins
The road to compliance is long
Currently, most of Tether's funds are managed by financial services company Cantor Fitzgerald, and the bank's CEO Howard Lutnick regularly guarantees stablecoin issuers; in addition, Tether, like other competitors, has the same audit work completed by large accounting firms, and its current partner is independent third-party accounting firm BDO Italia.
Despite this, Tether currently still has to face pressure from regulatory forces, including the (Lummis-Gillibrand Payment Stablecoin Act) proposed by U.S. Senators in April this year (Odaily Planet Daily Note: The bill aims to impose the same strict supervision as banks on stablecoins with an issuance volume of more than US$1 billion, and encourage more banks to participate in the stablecoin market) and the new (MiCA) bill introduced by the European Union in June this year (Odaily Planet Daily Note: The bill prohibits stablecoins from conducting more than 1 million or more than US$215 million in payment transactions per day. It is worth mentioning that the stablecoin issuer Circle subsequently obtained permission from the bill to sell its two major stablecoins, USDC and EURC, in Europe).
In summary, if USDT and Tether want to maintain their dominant position in the stablecoin field, they will still need to make considerable efforts in future market competition.
Conclusion: Stablecoins may be the best “RWA product”
According to Julio Moreno, head of research at CryptoQuant, the rise in the market value of stablecoins over the past few months may contribute to the potential upward trend of Bitcoin and other major cryptocurrencies; the growing market value of stablecoins is a key factor in driving up cryptocurrency prices because they provide liquidity to the crypto market. Currently, the USDT reserves of cryptocurrency exchanges have also reached a record high of $22.5 billion. As he mentioned: "Stablecoins are like the blood of the cryptocurrency market." There is a high correlation between the Bitcoin price in September this year and the net inflow of stablecoin exchanges.
To some extent, the net inflow of stablecoins on exchanges can be used as one of the indicators for predicting Bitcoin prices. As the crypto market fluctuates with the world's political and economic situation, stablecoins, as one of the cryptocurrencies with the deepest connection with real-world assets and crypto assets, undoubtedly have a certain "barometer" effect.
USDT reserves on exchanges
On the other hand, stablecoins represented by USDT, which are pegged 1:1 to the US dollar, may also be regarded as the "best RWA (real world asset) product". Of course, stablecoins issued by centralized institutions still have a series of problems, such as depegging risks, centralized blockade processing, and money laundering risks in the gray and black industries. In this regard, Bluechip, an independent non-profit stablecoin rating agency established in July 2023, regularly rates stablecoins from six dimensions: stability, management, technical implementation, decentralization, governance, and external factors, which facilitates the market to have a more comprehensive understanding of stablecoins and risk prevention and control.
As for the future development direction, some market personnel are concerned about whether Tether will release its own stablecoin blockchain network in the future. Tether CEO Paolo Ardoino said in an interview before, "Although the company is strong in technology, blockchain may become a commodity in the future, so launching a blockchain on its own may not be the right choice. Tether has a 'neutral' attitude towards blockchain. For us, blockchain is just a transport layer."
As a "blood type" of "crypto blood", whether USDT can be connected to more "economic organs" in the future may still need time to verify.
More information:
https://tether.to/en/
https://ethereum.org/en/stablecoins/
