Tether, the issuer of the most popular stablecoin in the crypto market, has been on a printing spree in the last three months. According to data from CoinGecko, Tether has increased its supply by more than $10 billion since October 2023, reaching a total of $97 billion at the time of writing. This means that Tether is close to joining the exclusive club of crypto assets with a market capitalization of over $100 billion, which currently includes only Bitcoin and Ethereum.
Tether’s growth is driven by the high demand for stablecoins, which are digital tokens that are pegged to a fiat currency or another asset and aim to provide stability and liquidity in the volatile crypto market. Stablecoins are widely used for trading, arbitrage, lending, remittance, and other use cases that require fast and cheap transactions without exposure to price fluctuations.
Tether, which claims to be backed by US dollars and other reserves at a 1:1 ratio, is the dominant stablecoin in terms of market share and trading volume, accounting for more than 75% of the total stablecoin supply and more than 50% of the total crypto trading volume.
Tekedia Mini-MBA edition 15 (Sept 9 – Dec 7, 2024) has started registrations; register today for early bird discounts.
Tekedia AI in Business Masterclass opens registrations here.
Join Tekedia Capital Syndicate and invest in Africa’s finest startups here.
However, Tether’s rapid expansion also raises some concerns and challenges for the crypto industry. Tether has been under scrutiny for its lack of transparency and regulatory compliance, as well as its potential systemic risk to the crypto ecosystem.
Tether has faced multiple lawsuits and investigations from authorities in different jurisdictions, including the US, the UK, and Hong Kong, over its reserve claims, its role in market manipulation, its ties to Bitfinex exchange, and its compliance with anti-money laundering and counter-terrorism financing regulations. Tether has also been criticized for its centralized governance and issuance process, which could expose it to hacking, censorship, or seizure by hostile actors.
In the past three months, Tether has issued more than $10 billion worth of USDT, bringing its total market cap to over $40 billion. This is a staggering amount of money that could have significant implications for the crypto ecosystem and the global financial system.
One implication is that Tether could be inflating the prices of other cryptocurrencies, especially Bitcoin. Since USDT is widely used as a medium of exchange and a store of value in the crypto space, it creates artificial demand for Bitcoin and other coins. Some analysts have estimated that up to 70% of Bitcoin’s price is driven by Tether issuance. If Tether is not fully backed by US dollars, it could mean that the crypto market is overvalued and vulnerable to a crash.
Another implication is that Tether could pose a systemic risk to the financial system. If Tether is not fully backed by US dollars, it could face a run on its reserves, where users lose confidence and try to redeem their USDT for real dollars. This could trigger a liquidity crisis and a contagion effect, where other stablecoins and crypto exchanges that rely on Tether face solvency issues. Moreover, if Tether is involved in illicit activities such as money laundering or tax evasion, it could attract regulatory scrutiny and legal action from authorities around the world.
Tether’s lack of transparency and accountability raises serious questions about its legitimacy and sustainability. As the largest and most influential stablecoin in the crypto market, Tether has a responsibility to prove its claims and comply with regulations. Otherwise, it could jeopardize the future of the crypto industry and the financial system.
As Tether approaches the $100 billion milestone, it will face more pressure and competition from both regulators and rivals. Regulators may impose stricter rules and oversight on Tether and other stablecoins, as they seek to protect consumers and financial stability from the potential risks posed by these unregulated entities.
Rivals may challenge Tether’s dominance by offering more transparent, decentralized, and innovative alternatives, such as algorithmic stablecoins, collateralized stablecoins, or central bank digital currencies. Tether will have to prove its resilience and reliability in order to maintain its leading position and reputation in the crypto market.