Behind the Facade of Growth
Despite Tether’s apparent success with increasing market capitalization and revenues, unfavourable trends are emerging. The company faces growing criticism and a gradual shift away from USDT by major market participants.
Record Growth and Profit
Over the past 18 months, USDT’s market capitalization nearly doubled, reaching a record $112.8 billion. Tether’s share of the stablecoin market also rose from 48% to 69%. In the first quarter of 2024, the company achieved a record profit of $4.5 billion, surpassing major tech giants in revenue per employee. Additionally, the reported excess of assets over liabilities continues to grow, currently standing at $6.3 billion.
Persistent Issues
However, Tether has yet to address key issues: increasing reserve transparency, conducting a full audit, and obtaining American and European licenses. Basic information about correspondent banks holding the reserves remains undisclosed. With the advent of European (and soon American) stablecoin regulations, this lack of transparency hampers USDT’s circulation in these regions.
Regulatory Impact
This year, the EU’s MiCA regulation will take effect. In response to compliance requirements, Binance, OKX, and Uphold have already announced restrictions or discontinuations of USDT use in Europe.
Shift in Market Dominance
These trends contributed to USDC surpassing USDT in transaction volume by a significant margin in 2024. USDC, issued by American company Circle, boasts the necessary licenses and transparency levels. Circle’s reserves are 100% backed by short-term government bonds and dollars held in bank accounts, without Bitcoin, credit obligations, or commercial papers as seen with Tether.
Regional Disparities
As cryptocurrencies become more institutionalized, Tether is increasingly pushed from the Global North to the Global South. In regions like Latin America, USDT still maintains a leading role, even surpassing Bitcoin.
Systemic Risks
The widespread use of Tether, despite its issues, poses a systemic risk. In May, Ripple’s CEO Brad Garlinghouse labeled the company a potential “black swan” for the crypto market. In June, the American consumer rights organization Consumer’s Protection launched a media campaign against Tether, stating:
“…Tether might follow the path of FTX. Consumers should avoid stablecoins whose issuers cannot adequately verify their reserves.”
