Despite claims of ‘fractional banking’ and legal issues around its parent company iFinex and the cryptocurrency exchange Bitfinex, Tether gained ground in 2019. USDT not only improved on its dominance, but it was also the most ‘stable’ stablecoin over the last year.
According to the yearly report released by cryptocurrency analytics firm CoinGecko, USDT was the only stablecoin that increased its dominance, in terms of supply and issuance, in 2019. Tether recorded a massive 6.5 percent price increase as the bad press failed to dent its market performance. The other top stablecoins, USD Coin [USDC], Paxos Standard [PAX], True USD [TUSD], and Maker’s Dai [DAI], all saw their shares drop.
Source: Stablecoin Dominance, CoinGecko
True USD was the biggest loser among the top-5 stablecoins, losing 4.4 percent of its market dominance and holding 3.1 percent of the total market at the end of the year. PAX was boosted by the loss to TUSD, holding 4.2 percent of the market. USD Coin lost just 0.5 percent of its market share, against the previous year,
Gemini USD, the stablecoin launched by the Winklevoss twins’ Gemini exchange, fell out of the top-5.
In terms of volume, Tether recorded “strong growth” in Ethereum ERC-20 and Tron TRC-20 token usage, the report said.
Stability-wise, Tether continued to dominate. CoinGecko assessed the number of days the stablecoin lost its $1 peg by a factor of more than -1 or +1 and found USDT to be the least volatile. Tether lost its peg, by the aforementioned degree, on three days only; Paxos was next in line, deviating on 14 occasions.
Source: Stablecoin Stability, CoinGecko
USD Coin and True USD lost its $1 peg on 22 and 25 days, respectively. DAI was the most volatile stablecoin, losing its peg on 111 days. The report also noted the correlation between stability and liquidity,
“There is a strong correlation between the stablecoins’ ability to maintain their $1.00 peg with overall liquidity.”
The crypto-collateralized stablecoin had the least available markets and the lowest trading volume. The DAI markets were smaller than the PAX market by a factor of 100x and against the USDT markets by 12000x.
‘Tether can do really well as collateral for a lot of DeFi projects’
Tether, by far, has been the most controversial stablecoin in the market, with the coin consistently in the news for not being 100 percent backed, something that drew the attention of the New York Attorney General’s office. The coin, which was one of the hottest topics in the crypto-ecosystem, was recently discussed by Paolo Ardoino, CTO of Bitfinex and Tether, in an interview with Ivan on Tech.
During the interview, Ardoino briefly spoke about Tether‘s expansion from Omni, built on top of Bitcoin blockchain, to other popular blockchains. The stablecoin has established presence on Ethereum, Tron, EOS, and Liquid, and will also be debuting on Algorand, a proof-of-stake blockchain.
The CTO of one of the leading crypto-exchanges shed light on the criteria set by the team to decide which blockchain the stablecoin would be launching on, considering the uncertainties related to blockchain platforms such as Ethereum shifting from proof-of-work to proof-of-stake. Ardoino stated that there are security and business reviews in place, adding that the first process is to check whether there is significant interest from the community to launch Tether on top of its platform.
Citing the example of Etheruem, he stated that Tether was launched on top of Ethereum around December
“[…] we got a lot of questions and EOS, Ethereum, and Tron, they all support smart contracting. And, now since DeFi is a big topic right […] I think Tether can do really well as collateral for a lot of DeFi projects […] being on multiple blockchains create this situation, where you are de facto the standard stablecoin across all chains.”
He also opined that expanding Tether’s presence on multiple blockchains was a “really bold move” as it required a lot of technical reviews. The team had to ensure that vulnerabilities were not being introduced during network upgrades etc., he said. Ardoino added,
“At the same time, it creates new opportunity for, well basically a situation where Tether can remain in control and be basically the first stablecoin on every single blockchain and basically being the main stablecoin used because everyone will be used to use[ing] Tether. So, that’s basically the reason.”
Circle CEO Jeremy Allaire Slams Tether for Being Unregulated Offshore Banking Solution
Jeremy Allaire, the CEO of Circle, has shared some scathing critique of Tether (USDT), the leading stablecoin in the cryptocurrency industry. In his latest tweet, he describes it as an unregulated offshore banking solution for China whose main selling point is its non-compliance.
Edging out competitors
At the same time, Allaire touted the success of the USDC stablecoin that was launched by Circle and Coinbase back in 2018. USDC is already among the 22nd biggest cryptocurrency with its market cap reaching $520 mln, leaving its closest rival Paxos Standard (PAX) far behind it. The latter had a hard time increasing its circulating supply throughout the year.
As reported by U.Today, Blockchain Capital predicted
Gemini’s GUSD and Binance’s BUSD stablecoins are unlikely to see this kind of success this since, according to Allaire, they were already dead on arrival.
A double-edged sword
USDC stands out as a regulated version of Tether that is fully backed by fiat and audited on a monthly basis. For comparison, Tether only 74 percent of all USDT tokens are actually pegged to the US Dollar. On top of that, the leading stablecoin issuer, along with its affiliate exchange Bitfinex, has faced numerous controversies linked to Bitcoin price manipulations and their $850 mln cover-up.
That said, USDC has a major downside that stems from its regulatory compliance — lack of fungibility. Since the likes of USDC and GUSD are dependent on tight banking relationships, they have a backdoor system that allows blacklisting any suspicious transactions.
Tether Has Been Below $1 For Six Months, And Its Bearish For Bitcoin
Bitcoin has managed to hold above the $7,000 level until the end of the year but could turn bearish in the short term the new year begins. Tether price action has been weak since July 2019 and it is not a good sign for BTC.
USDT and Bitcoin Demand Correlation
Tether has always been a point of contention in the crypto community. It has provided massive liquidity for markets but has also been the subject of disparagement for the potential to manipulate prices and fake Bitcoin demand.
It has been observed that Tether prices below a dollar are bearish for Bitcoin. USDT has been bearish since the market contraction began in July.
Market analyst Josh Olszewicz has noted the correlation and remains bearish on BTC.
“I REALLY CANT GET BULLISH AGAIN UNTIL $USDT > $1. SINCE JULY, $USDT < $1 HASN’T BEEN BULLISH”
His reasoning is that it represents people exiting out of USDT and back into fiat which is an outflow from crypto. As we have seen the total crypto market capitalization has collapsed over 40% during the same period.
At the time of writing BTC was falling back to the $7,100 level which where support has held for the past week or so. Below this there is support at $7k and a weaker level at the high $6.8k range.
Bitcoin is currently in its longest consolidation period since February last year when it remained just below $4k for around six weeks.
Tether’s market movements also have an impact on Bitcoin prices. There appears to be a correlation between USDT expansion and contraction and BTC movements as observed by research analyst Elias Simos last month.
“BUYING $BTC WHEN TETHER EXPANDS AND SELLING WHEN IT CONTRACTS, YIELDED A 2X RETURN – HODLING YIELDED PAR.”
Print Some More
Last month the Tether printers were fired up again as a further $20 million were minted by the Treasury on December 28. Prior to that, $40 million USDT entered markets on December 11 and another $30 million on December 20.
If BTC rallies have occurred after Tether issuance the increased Treasury activity could spark another one.
According to the Tether Transparency Report the total supply of USDT is $4.8 billion which is higher than that reported by analytics websites such as Coinmarketcap.com.
There has also been a lot of migration from OMNI to Ethereum and Tron networks also which would affect BTC on-chain activity. There is reportedly over $2 billion USDT in ERC-20 and almost a billion in Tron’s equivalent.
Bitcoin and Tether are clearly correlated so increased Treasury activity could get the token back over its peg which would be bullish for BTC.
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