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Crypto explained

Tether continues to fuel crypto market liquidity

Saturday, April 3, 2021

From the moment Satoshi Nakamoto published his white paper in 2009, Bitcoin has been the highest-priced, most well-known, and most coveted cryptocurrency. But when it comes to ensuring liquidity on the crypto market, a different coin has gained prominence: Tether (USDT).

Using April 1, 2021 as a baseline, Tether generated a massive $113.9 billion[1] in volume over a 24-hour period -- 68%[2] above the dollar volume produced by Bitcoin during that same stretch and nearly four times the volume traded in Ethereum[3]. As of February 2021, 57% of all Bitcoin trading was done in USDT[4].

These are some of the biggest reasons why exchanges offer Tether as a stablecoin option.


A stablecoin is a cryptocurrency that is pegged to a fiat currency, and as such, is far less volatile than other coins. This makes it easier for crypto traders to use stablecoins when swapping between different assets. The price of a stablecoin is generally pegged to a fiat currency (such as the U.S. dollar), though it may also be pegged to another cryptocurrency, or to exchange-traded commodities.


Tether got its start as a stablecoin in June 2014, under the name RealCoin. Rebranded as Tether in November of that year, it started trading on exchanges in February 2015, making it the first stablecoin to be listed and also the largest and most influential of all stablecoins in terms of market capitalization.


USDT was the first to demonstrate the value that stablecoins can offer as a source of crypto liquidity. As a stablecoin that is pegged to the price of the U.S. dollar, Tether became a fast, efficient, and less volatile way to transfer value from one exchange to another.


USDT later lost that direct link to the U.S. dollar, as its creators said in 2019 that each coin was backed by only 74 cents in U.S. funds. Without the guarantee that each coin is backed by one U.S. dollar in cash or cash equivalents, Tether’s price has moved far more than a typical stablecoin might, often dipping well below its expected price of $1 U.S.


That lack of guaranteed reserves and relatively high volatility for a stablecoin makes Tether different from some of its peers, including USD Coin (USDC). Much of USDC’s appeal lies in its status as the only fully and publicly audited stablecoin. Built on Ethereum and launched by Circle and Coinbase (the Centre Consortium) in 2018, USDC is verifiably fully collateralized. That means that for every USDC released, one U.S. dollar gets deposited into a Centre Consortium bank account. USDC’s guaranteed collateral has made it one of the fastest-growing stablecoins, and the first stablecoin to be listed by EQUOS.


Although USDT had struggled previously to show it was fully collateralized, concerns were significantly reduced following the settlement reached by the New York Attorney General in February, regarding its recent inquiry into Tether’s financial transparency[5]. Plus a report[6] released at the end of March, in which independent auditor Moore Cayman attested that the stablecoin is fully backed by US dollar reserves, is likely to reinforce its popularity with crypto exchanges and investors as a widely accepted store of value.


Exchanges that feature multiple stablecoins (such as USD Coin (USDC), TrueUSD (TUSD), and Maker DAI, in addition to USDT and others) give consumers more choice. This is an important criterion as more investors flock to cryptocurrencies and look for different ways to buy, sell, and swap crypto assets.


More broadly, a widely accepted stablecoin like Tether can help merchants price goods in fiat currency instead of Bitcoin, thus offering far more stability and cost certainty, as well as no chargebacks.


Tether is the most widely used of the stablecoins, currently ranking fourth in market cap among all cryptocurrencies[7]. By offering Tether on their platforms, crypto exchanges can enhance that valuable economic freedom and freedom of choice for their customers.


The goal for any cryptocurrency is to offer greater economic freedom than legacy financial institutions and currencies provide. That freedom, along with greater choice and increased fungibility, mean we should expect exchanges to offer their investors multiple stablecoin options for the foreseeable future.


EQUOS now offers a USDT/USDC cross as a capital efficiency tool. with a maker-taker fee of just 1 basis point. Sign up now: www.equos.io


[1] Source: Coinmarketcap: April 1, 2021 - $113,995,770,850

[2] Source: Based on Bitcoin 24 hour volume of $67,833,915,894

[3] Source: Based on Ethereum 24 hour volume of $31,293,334,871

[4] Source: Cryptocompare (link)

[5] Source: Coindesk: NYAG’s Probe of Bitfinex, Tether Ends in an $18.5M Settlement (link)

[6] Souce: Tether.to (link)

[7] Source: Coinmarket cap as of April 1, 2021

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