Perhaps unlike most people’s guesses, the fastest growth in the market value of the digital currency field in 2020 is not the bitcoins bought by users of the popular mobile payment application Cash App, or DeFi (decentralized finance) technology. Ethereum, the application of which has landed and developed rapidly, is the US dollar stable currency Tether (USDT).
So far in 2020, the total market value of digital currencies has increased by 106.74%. Among the top five digital currencies, Tether has the fastest increase in market value. The year-to-date scale has increased nearly three times, becoming the world’s third largest cryptocurrency by market value, with a valuation of approximately US$16 billion .
Tether has done a “stable” business in a volatile market.
Strong demand from derivatives and emerging markets
Tether is a digital currency anchored to the US dollar. Tether was created by Bitfinex to solve the problem of stable exchange rates in digital currency transactions, and has played an extremely important role in the trading market from day one. According to data from Chainalysis, digital currency trading is the main demand for USDT. In the past six months, 97.9% of the newly minted USDT was directly transferred to the exchange from the official Tether account.
Compared with different types of trading platforms, the recent increase in USDT funds inflows into derivatives trading platforms has been the highest, with an average growth rate of 248% over the past 7 days compared to 180 days.
In 2020, with the intervention of hedge funds and financial institutions, the demand for derivatives is increasing. In the digital currency trading market, the most popular product is the “reverse swap contract” (BTC-based derivatives). This historical origin comes from before Tether was accepted by the market, such as the “reverse swap contract” of the derivatives platform BitMEX. Derivatives”. With the rise of emerging derivatives trading platforms (such as FTX and Binance Futures), they have launched various “USDT-denominated derivatives” and have been recognized by retail traders. Whether it is a trading platform, market maker or trader, a large amount of USDT will be required to gain exposure.
The Block’s BTC derivatives position data shows that USDT-standard BTC perpetual swap positions have increased by about 300% year-to-date on the Binance Futures platform, while the total position of the well-known reverse derivatives trading platform BitMEX has fallen by nearly 38% year-to-date. The USDT derivatives market is becoming more and more vigorous.
The heavy users of digital currency come from emerging markets, usually from Eastern Europe, Africa, South America and East Asia. The top three countries in the global digital currency penetration rate are Ukraine, Russia and Venezuela.
Due to the many uncertainties brought by 2020, according to Google Trends data, the global market’s attention to Tether has doubled in the past year, and the demand for offshore finance has risen rapidly.
From the data of USDT holding liquidity, it can be seen that the use of stable currency Tether nearly 5 billion U.S. dollars is classified as non-liquid, which also accounts for the majority. In addition to being used for market transactions, it is also considered by the market as a store of value.
Multi-chain issuance reduces costs
With the aging of the Omni protocol, most of the current Tether on the chain is in the Ethereum network. In recent years, there have been more and more other competing public chains (such as TRON, EOS, Algorand, etc.) and the Layer 2 expansion network (OMG). ) USDT is issued.
The above figure shows that after the Fed expanded its credit scale, the price of Bitcoin has also seen a significant increase. From the perspective of the graphic trend, it is almost in line with the direction of gold and US stocks.
The correlation coefficients between Bitcoin and gold and the S&P 500 index that we have calculated through specific calculations strongly confirm this point.
Tether’s CTO (Paolo Ardoino) stated that the USDT migration to the OMG network will reduce costs and ease the congestion of the Ethereum network.
In January 2020, Tether also issued a privacy stablecoin worth 15 million U.S. dollars in the sidechain liquid created by blockstream, and the monitoring tools could not monitor the details of its transactions.
At present, more and more blockchains and protocols are supporting USDT. In addition to Ethereum and TRON, which are the public chains that carry the largest Tether, there are also many protocols that are also issuing stable coins, such as BCH’s Simple Ledger (SLP), The stablecoin ecosystem is becoming more and more diversified to meet the needs of different segments.
Market competition and compliance
In addition to USDT, USDC is the largest among the common competitive stable digital currencies, and there is also the decentralized stable currency Dai, which is over-collateralized by digital currencies. At present, competitive stablecoins account for about 32% of USDT’s circulating market value and are gradually rising. Although it does not directly compete with Tether, the participants in the stablecoin field are becoming more and more diversified.
Although the business of stablecoins is growing, the biggest challenge is compliance and cross-border supervision. After the “Paradise Documents” and hacker attacks in 2017, USDT has been regarded as the last straw for systemic risks. In 2019, New York State prosecutors took their parent companies IFinex Inc and Bitfinex to court. In September 2020, the New York Attorney General’s Office continued to conduct an in-depth investigation into Ifinex used Tether to make up for Bitfinex’s loss of $850 million in 2019. It can be seen that although stablecoins have now developed into the cornerstone of the blockchain industry, they also face many challenges.
