Behind the new high in USDT supply: Average transfer amount of 7,000 USD, gradually becoming the preferred choice for daily payments and remittances

Author: Tanay Ved

Compiled by: Deep Tide TechFlow

Introduction

Stablecoins are often regarded as the "killer app" of cryptocurrencies, playing a crucial role in bridging traditional finance and the digital asset ecosystem. In this space, USD-backed stablecoins have seen remarkable adoption over the past few years. Stablecoins facilitate 24/7 value exchange, serving as a store of value, medium of exchange, and providing a key value proposition for economies lacking access to USD, particularly in emerging markets where people face high inflation, currency devaluation, or limited basic financial services. With the continuous expansion of new issuers, collateral types, and use cases, Tether (USDT) has emerged as a dominant force.

As a fiat-collateralized stablecoin, Tether accounts for over 75% of the stablecoin market cap, which exceeds $120 billion. However, this dominance comes with considerable skepticism, particularly regarding the transparency of its reserves and the nature of the company managing Tether, Cantor Fitzgerald. Recently, CEO Howard Lutnick's comments on the legitimacy of its backing may have alleviated some concerns. Nevertheless, the immense scale of USDT's influence warrants closer examination.

In this article, we delve into the rise of Tether, exploring its primary growth avenues, adoption trends, usage characteristics, and reserve holdings, gaining a comprehensive understanding of this stablecoin giant through on-chain data.

USDT Supply: Hitting New Highs

Recent interest surrounding spot Bitcoin ETFs may have inadvertently diverted attention from Tether's significant growth. Tether recently achieved a new milestone, surpassing its all-time high supply of over $95 billion, a 35% year-over-year increase. Analyzing the distribution of this total supply reveals that 46%, or $44 billion, is minted on the Ethereum blockchain. In contrast, 53%, or $50.8 billion, is issued on the Tron network. Meanwhile, in January 2020, Omni's issuance accounted for nearly 33% of the total, a figure that has since dropped to 1% due to Tether's decision to cease support for that network. As the digital asset ecosystem continues to evolve, Tether's issuance is expanding to alternative Layer 1 networks such as Solana and Avalanche. This expansion enhances the utility of USDT across various on-chain ecosystems.

Shift in Adoption Trends

Recent turmoil, particularly the collapse of Silicon Valley Bank (SVB) and the aftermath of Operation Choke Point 2.0, may have catalyzed the surge in offshore stablecoins. A closer examination of this growth reveals key drivers. One particularly noteworthy trend is the increasing significance of USDT (ETH) in smart contracts, a domain historically dominated by Circle's USDC. The fallout from the SVB crisis seems to have shaken market confidence in USDC, inadvertently boosting USDT's participation in smart contracts. Since March 2023, USDT's presence in this area has risen from $4 billion to nearly $6.9 billion. This shift underscores USDT's growing popularity in decentralized finance (DeFi) applications, a trend reflected in our other market reports. Notably, USDT has surpassed USDC on leading platforms like Aave v2 and Compound, further solidifying its position in the DeFi space.

The increasing influence of USDT in DeFi is clearly evident in lending platforms and exchanges, highlighting its critical role in trustless transactions related to USD, ultimately enabling broader and more efficient access to financial services.

While Tether's use in smart contracts has expanded, it is primarily held by externally owned accounts (EOAs) or accounts controlled by private keys, similar to accounts owned by individual users. On Ethereum, the supply of Tether (ETH) has risen to $37 billion, accounting for 84% of the total supply on Ethereum. These trends reflect the growing demand for digital dollars, not only as a store of value or a hedge against volatility but also as a medium for transactional activities such as trading or payments.

Exploring Usage Patterns

As the largest and most widely adopted stablecoin, Tether enjoys extensive usage. This month, on the Ethereum network, the adjusted on-chain transfer value involving different USDT addresses exceeded $5 billion. Meanwhile, the transfer value on the Tron network surpassed $11 billion. Since its launch in 2014, Tether has facilitated over $13 trillion in transfers, underscoring its growing utilization. This widespread adoption is particularly notable in emerging markets in Africa, Latin America, South Asia, and other regions. In these areas, Tether often serves as a substitute for USD. It provides a means to protect savings, seek economic stability, and access banking infrastructure, thereby enabling peer-to-peer transactions for various purposes.

To better understand usage patterns and whom Tether serves, it is insightful to examine the nature of a "typical" Tether transaction. Data shows that the average transfer amount of USDT is generally lower than that of USDC, which currently averages around $75,000 per transaction. This higher average indicates that USDC is typically used for larger-scale transactions, consistent with its status as the primary domestic (U.S.) stablecoin and its widespread use in DeFi applications.

In contrast, USDT on the Ethereum network shows an average transfer amount of $35,000, indicating its involvement in significant financial activities within the DeFi ecosystem, which may be influenced by Ethereum's higher transaction fees. Conversely, USDT on the Tron network presents a different scenario. Due to lower transaction fees on Tron, the average transfer amount for USDT is around $7,000, facilitating more frequent, lower-value transactions. This makes it a practical choice for everyday payments and remittances.

More broadly, these patterns reflect not only different user demographics and preferences but also highlight the impact of the underlying networks on which these stablecoins operate.

Like other stablecoins, USDT plays a crucial role as a quoted asset, facilitating liquidity trading of digital assets on exchanges. With the recent boom in the digital asset market and the launch of spot Bitcoin ETFs, USDT has facilitated over $25 billion in credible spot trading volume, surpassing the peaks seen in November 2022 and March 2023. Tether also plays a dominant role in this area, accounting for over 85% of stablecoin-denominated trading volume.

Nature of Tether's Reserves

The composition and transparency of Tether's reserves have long been a contentious topic, often sparking speculation about whether its financial backing is sufficient. However, Howard Lutnick's confident statements at the World Economic Forum in Davos, confirming "they have the money," help alleviate some of these concerns, adding credibility to discussions about Tether's reserves. Currently, the only way to verify this is through reports from independent auditors, which provide detailed breakdowns of the assets in reserves on a quarterly basis.

Over the years, Tether's reserve composition has undergone several changes. While debt instruments like commercial paper constituted a significant portion of the reserves in 2021, their latest attestations indicate that the reserves are primarily composed of U.S. Treasury bonds, reflecting the rising interest rate environment. In May 2023, Tether announced that they would allocate up to 15% of realized profits to purchase Bitcoin to increase USDT's excess reserves. This has resulted in a holding of 57.5K BTC, equivalent to a Bitcoin holding worth $1.6 billion, consistent with their latest attestations in Q3 2023. However, if it can be established that this Bitcoin account is explicitly linked to Tether, it would mean that Tether recently purchased an additional 8.9K BTC, bringing the total to 66.4K BTC. This inference is supported by evidence that the credit to this account seems to be associated with the exchange Bitfinex, which is closely linked to Tether.

While quarterly attestations provide insight into Tether's holdings, official, more frequent audits that offer detailed transparency would be a welcome development for users and skeptics alike.

Conclusion

Tether's impressive rise demonstrates its tangible utility, particularly in developing economies where economic instability and a lack of stable, reliable monetary systems highlight Tether's practicality.

Despite valid concerns regarding centralization and transparency, the diverse benefits Tether provides should not be overlooked. As one of the gateways to broader digital asset adoption, Tether has propelled the entire stablecoin market forward. While it is the largest stablecoin today, it will be interesting to see whether it continues to maintain its dominance in an ever-changing environment. The planned IPO of Circle and the rise of crypto staking and interest-bearing stablecoins make the dynamics of the stablecoin market particularly noteworthy.