"The first stablecoin" USDT reaches a new market value high, revealing the hundred billion business empire behind Tether
Starting with encryption, but not limited to it, Tether (USDT), which has become a "community of interests" with U.S. Treasury bonds, has larger ambitions.Author: Wenser, Odaily Planet Daily
On October 2, Tether CEO Paolo Ardoino stated, "USDT may have initially been just a cryptocurrency, but today it has become the most widely used digital dollar in the world," expressing pride in USDT's current transcendent market position and diverse application scenarios.
As the mastermind behind the "largest stablecoin by market capitalization," he certainly has reason and confidence to say such things. After all, as a "cornerstone product of cryptocurrency," stablecoins have always been regarded as the "blood of crypto."
Following the collapse of the algorithmic stablecoin UST issued by Terraform Labs in May 2022, mainstream stablecoins like USDT and USDC, which are pegged to U.S. Treasury bonds, gradually became the "cash cow business" for generating stable cash flow in the industry, attracting increasing attention. The market has also begun to view the flow and supply growth of stablecoins as one of the indicators for cycle judgment.
Odaily Planet Daily will provide a brief interpretation of USDT and its issuer Tether for readers' reference.
Tether's Expansion: Starting with Cryptocurrency, Not Just Cryptocurrency
As Tether CEO Paolo Ardoino mentioned, USDT was initially just "a cryptocurrency," but over time, its usage has long surpassed the category of "cryptocurrency" and has become a "widely used digital dollar." Specifically, it has been widely applied in various scenarios such as cross-border payments, daily consumption, and cryptocurrency exchanges.
Since 2014, USDT's growth has been steadily increasing. In August 2021, the market capitalization of the stablecoin sector first surpassed $100 billion, with USDT ranking first with a market cap of over $65 billion. According to the latest data from IntoTheBlock, USDT's total market cap has now surpassed $126 billion, setting a new historical high (*Odaily Planet Daily Note: * Tether's official website* shows that the net issuance of USDT totals $119,640,575,156.23*).
On July 31 this year, Tether released its Q2 2024 financial report, which showed that its profit for the first half of 2024 reached a record high of $5.2 billion, with net operating profit reaching $1.3 billion, marking the best performance ever. Additionally, Tether's holdings of U.S. Treasury bonds exceeded $97.6 billion, also setting a historical high. According to a previous report by the Wall Street Journal, the funds flowing through the Tether network in 2023 were nearly as much as those processed by global payment giant Visa, with a net profit of $6.2 billion for the year. In other words, Tether's profit for the first half of 2024 is already close to its total profit for 2023. In comparison, asset management giant BlackRock's net profit for common stockholders last year was only $5.5 billion. It’s no wonder that many industry insiders in the crypto space exclaimed, "Stablecoins are indeed a stable and profitable 'good business'!"
Specifically, the use cases of USDT include the following aspects:
Cryptocurrency Market: The "General Equivalent" of Digital Assets
According to information from Tether's official website, exchange users and individual users are its main customer groups. After all, Paolo Ardoino himself has always been the CTO of the crypto exchange BitFinex, a title that still appears in his personal account profile; moreover, USDT has become a commonly used medium in daily transactions as the "general equivalent" of cryptocurrency.
Main Partner Exchanges of USDT
Areas with Severe Inflation: The Best "National Currency Substitute"
As the global economic situation evolves, some countries and regions are experiencing severe inflation. Building on the "peer-to-peer payment system" legacy of Bitcoin, USDT has become a "national currency substitute" in many inflation-stricken areas.
Tether CEO Paolo Ardoino previously stated in a media interview: "In countries like Argentina and Turkey, USDT provides a lifeline as a substitute for volatile national currencies. Before USDT was widely adopted, people in inflation-stricken countries had to turn to the black market to obtain dollars* (Odaily Planet Daily Note: Since the global economic system is dollar-denominated and the dollar has relatively strong anti-inflation capabilities)*."
He also mentioned, "USDT works much better outside the U.S. In the U.S., there are 15 different layers of transmission for the dollar. You have banks, credit cards, debit cards. You have Venmo, PayPal, Cash App, etc… But who needs a dollar? Imagine someone living in Haiti earning $1.34 a day. How do they pay a $5 transaction fee? These markets cannot afford to pay $5 or $6 in fees for each transaction on Ethereum or other chains."
This is also one of the reasons why TRON has become the blockchain network with the most stablecoin transactions. Latest data** shows that the total authorization amount of USDT on the TRON network has reached as high as $61.8 billion, while the total authorization amount on Ethereum is close to $55 billion.**
To add, thanks to stablecoin transactions and the previous meme coin craze boosted by SunPump in the TRON ecosystem, TRON's total revenue in Q3 reached a record $577 million, marking a historical high, with a 43% increase compared to Q2 this year.
USDT Issuance Information
International Trade: A "Payment Tool" Recognized by Many
As an important part of the global economic system, international trade (including cross-border e-commerce and other industries) has a pressing demand for quick payments and a vast market. To some extent, USDT has become one of the "payment tools" recognized in this field. After all, compared to the complex, costly, and rule-heavy global SWIFT banking wire transfer system, USDT's advantages are undoubtedly significant: efficient, convenient, stable, and lower cost, with related advantages explained on Tether's official website.
Of course, with advantages come disadvantages. The convenience, anonymity, and high liquidity of USDT also provide a "pillow on the bed of the gray and black industry." As previously mentioned in the Wall Street Journal: "While Tether does vet the identities of direct clients, its vast secondary market is unregulated. According to a UN report from January this year, USDT is the preferred choice for money laundering in Southeast Asia."
Reasons Merchants Choose USDT
Tether's Business Model: The Cryptocurrency Version of the "Federal Reserve"
Looking closely at Tether and its stablecoin USDT's business model, its revenue model and profit sources mainly come from the following aspects:
U.S. Treasury Yield: Profits from U.S. Treasury Bonds
According to U.S. Treasury holdings data, as of July this year, Japan's holdings of U.S. Treasury bonds were $1.1157 trillion; China's holdings were $776.5 billion; South Korea's holdings were $122.7 billion; and Germany's holdings were $101.6 billion. In other words, if Tether were a country, its holdings of U.S. Treasury bonds would be comparable to Germany's and close to South Korea's.
Tether CEO Paolo Ardoino has previously stated: U.S. Treasury bonds support USDT, and if USDT holders want to cash out, they can easily convert it to dollars. Meanwhile, the interest also flows into Tether's treasury. He added, "We (essentially) increase the elasticity of dollar ownership, so no country or decision-maker can sell hundreds of billions of U.S. Treasury bonds at once. USDT and Tether are the best friends of the dollar."
Earlier in August, he also stated: Due to rising interest rates, Tether has made extremely high profits over the past two years, currently earning a profit of 5.5% from reserves, with Tether accumulating approximately $11.9 billion in profits over the past 24 months. According to Tether's Q2 report, Tether ranks 18th among countries holding U.S. Treasury bonds.
Redemption Fees: Transaction Fees as a Source of Profit
According to Tether's official website, users must meet requirements such as "minimum amount of $100,000, with a fee of 0.1% for each redemption" during the process of redeeming dollars, with each transaction costing either $1,000 or 0.1% (whichever is greater). Additionally, users creating accounts directly on Tether's official website will need to pay a verification fee of $150, which will be treated as a deposit and is non-refundable. It must be said that the "stability" of the stablecoin business is not only reflected in the 1:1 peg of the token to the dollar but also in its relatively stable profit sources------still the unchanging truth in the cryptocurrency industry------"transaction fees are the best business model."
Investment Returns: A Generous "Investor" Making Moves
In addition to the above business income, as a company with annual profits in the billions, Tether is also a "frequent investor."
Previously, Tether CEO Paolo Ardoino stated in an interview that "Tether is well-funded and is venturing into unfamiliar new fields such as artificial intelligence, planning to challenge Microsoft, Google, and Amazon. The company has already acquired a majority stake in the neuro-implant technology startup Blackrock Neurotech and invested in data center operator Northern Data Group, whose infrastructure is used to train AI models."
It is worth mentioning that although Tether has not yet seen returns from these two investments, its "intermediary" has already reaped significant rewards. For details, refer to the article: “Wall Street Journal: Behind Tether's $1.5 Billion Spending, the 'Intermediary' Earns a Fortune”, which mentions that Christian Angermayer, a tech investor and entrepreneur commissioned by Tether for investments, invested about $1.5 billion in two companies he holds shares in and earned a considerable commission from the transactions.
Moreover, Tether's investment scope is not limited to popular tech fields like AI; it has previously invested 1 billion dollars in Latin American agricultural giant Adecoagro. Before that, Tether had expanded its business into green energy, Bitcoin mining, artificial intelligence, and educational programs. For instance, it partnered with digital payment platform Rezo Money to promote blockchain education in Guinea; initiatives for education have also been implemented in regions like Thailand and Indonesia.
In the cryptocurrency field, its most recent move was a strategic investment of $1.5 million in Sorted Wallet, a platform aimed at promoting financial inclusion in Africa and South Asia. It is evident that Tether, as a "pioneer in cryptocurrency user education," is highly focused on "potential markets" outside of Europe and the U.S.
Other Income: Returns from Gold Reserves and Cryptocurrency Investments
In addition, according to official website information, Tether's reserve assets also include precious metals like gold and cryptocurrencies such as Bitcoin, which can provide certain asset returns and profits. Notably, the current details of reserve assets have significantly changed compared to the reserve asset details first released in March 2021, reflecting Tether's shift in asset reserves in recent years:
Reserve Asset Details as of March 31, 2021 are as follows:
- 75.85%: Cash and cash equivalents, other short-term deposits, commercial paper
- 12.55%: Secured loans
- 9.96%: Corporate bonds, funds, precious metals
- 1.64%: Others (including digital tokens)
Tether's Latest Reserve Report Information
It can be said that holding the issuance rights of USDT, Tether, despite facing regulatory pressures from various countries and regions, is rightly viewed as the "Federal Reserve of the cryptocurrency field" given its current influence and transcendent market position.
Tether's Future Path: Becoming the Super Dominant in "One Super, Many Strong"
Of course, the strong capital-raising ability of stablecoin businesses naturally attracts significant attention from various institutions and platforms. In addition to the closely following stablecoin issuer Circle and its USDC, there are currently many stablecoin products on the market.
Overview of Stablecoin Landscape Classification
According to information mentioned in a previous article by Messari researcher Addy titled “Overview of Various Stablecoin Products and Their Features”, the stablecoin landscape can be roughly divided into dominant players (i.e., USDT and USDC), centralized alternatives, government bond-backed stablecoins, decentralized stablecoins, lending-type stablecoins, and new design stablecoins including DYAD.
New and Old Competitors Compete
With the recent approvals of Bitcoin spot ETFs and Ethereum spot ETFs, the cryptocurrency industry's compliance and mainstreaming process has reached a milestone, and stablecoins, as important infrastructure products, have attracted a gradual increase in participation from both new and old players.
Previously, MakerDAO gradually converted DAI to USDS, while PayPal-supported PYUSD has been launched on both Solana and Ethereum networks. On the other hand, established platforms like Robinhood and Revolut have also entered the market. Although Robinhood later denied speculation about the company entering the stablecoin market and confirmed that Robinhood (HOOD) has no plans to launch its own stablecoin in the short term. Johann Kerbrat, Vice President and General Manager of Robinhood Crypto, stated, "Currently, we have no immediate plans to launch a stablecoin. Rumors are always interesting, but we are not really spending time on this." Sources indicate that Robinhood is "exploring" a stablecoin, but specific details have yet to be determined.
Top 16 Stablecoins on Defilama
The Long Road to Compliance
Currently, most of Tether's funds are managed by financial services company Cantor Fitzgerald, whose CEO Howard Lutnick regularly guarantees for the stablecoin issuer; additionally, like other competitors, Tether undergoes similar auditing by large accounting firms, currently partnering with independent third-party accounting firm BDO Italia.
Despite this, Tether still faces regulatory pressures, including the "Lummis-Gillibrand Stablecoin Payment Bill" proposed by U.S. senators in April this year (Odaily Planet Daily Note: This bill aims to impose strict regulations on stablecoins with issuance exceeding $1 billion, encouraging more banks to participate in the stablecoin market) and the new "MiCA" bill introduced by the EU in June this year (Odaily Planet Daily Note: This bill prohibits stablecoins from conducting more than 1 million transactions or exceeding $215 million in payment transactions daily. Notably, stablecoin issuer Circle subsequently received permission under this bill to sell its USDC and EURC stablecoins within Europe).
In summary, for USDT and Tether to maintain their transcendent position in the stablecoin field, they will still need to make considerable efforts in future market competition.
Conclusion: Stablecoins May Be the Best "RWA Product"
According to Julio Moreno, Head of Research at CryptoQuant, stablecoin market capitalization growth over the past few months may help the potential upward trend of Bitcoin and other major cryptocurrencies; the continuously growing market cap of stablecoins is a key factor driving cryptocurrency prices up, as they provide liquidity to the crypto market. Currently, the reserves of USDT on cryptocurrency exchanges have reached a historic high of $22.5 billion, as mentioned, "Stablecoins are like the blood of the cryptocurrency market," and there is a high correlation between Bitcoin prices and net inflows of stablecoins on exchanges in September this year.
To some extent, the net inflow of stablecoins on exchanges can serve as one of the indicators for predicting Bitcoin prices. As the crypto market sways with the global political and economic situation, stablecoins, as one of the cryptocurrencies most closely linked to real-world assets and crypto assets, undoubtedly have a certain "barometer" effect.
USDT Reserve Amount on Exchanges
On the other hand, stablecoins represented by USDT, which are pegged to the dollar at a 1:1 ratio, may also be seen as the "best RWA (Real World Asset) product." Of course, stablecoins issued by centralized institutions still face a series of issues, such as de-pegging risks, centralized blocking handling, and risks of gray and black industry money laundering. Regarding this, the independent non-profit stablecoin rating agency Bluechip, established in July 2023, regularly rates stablecoins from six dimensions: stability, management, technical implementation, decentralization, governance, and external factors, facilitating a more comprehensive understanding and risk prevention of stablecoins in the market.
When it comes to future development directions, market participants are curious whether Tether will subsequently launch its own stablecoin blockchain network. Tether CEO Paolo Ardoino previously stated in an interview, "Although the company is strong in technology, launching a blockchain on our own may not be the right choice as it could become a commodity in the future. Tether holds a 'neutral' attitude towards blockchain. For us, blockchain is just a transmission layer."
As a "blood type" of the "crypto blood," whether USDT can connect to more "economic organs" in the future remains to be seen.
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