Tether Cedes Territory To Rival Stablecoins As Crypto Investors Diversify

A tumultuous spring in cryptocurrencies is remaking the pecking order among so-called stablecoins, which act as a bridge between crypto and government-issued money.

Tether is the best known and most traded stablecoin, a breed of cryptocurrency that claims to offer reliable conversion to and from dollars at a fixed price. After Tether fell from its $1 peg to 95 cents on May 12, investors redeemed $10 billion in the weeks that followed.

Other stablecoins added users over the same period. USD Coin, the largest stablecoin after tether, added more than $5 billion in market value, while Binance USD, now the third-largest stablecoin, added around $1.4 billion, according to data provider CoinGecko .


Tether remains by far the largest stablecoin with a market value of $72 billion. On Binance, a popular crypto exchange, many tokens and derivative contracts are still quoted and collateralized in tether. The current market value of USD Coin is around $54 billion, while Binance USD has a market capitalization of $18 billion.

Considered stablecoins for their alleged lack of volatility, these assets have become a bigger part of the digital asset ecosystem over the past couple of years. Stablecoins are worth around $160 billion in market value, up from nearly $11 billion in June 2020.

But since the May collapse of terraUSD, formerly the third-largest stablecoin, investors and regulators have become more concerned about the risk of a 2008-style “bank run.” In May, Treasury Secretary Janet Yellen said reaffirmed the need for Congress to create a regulatory framework for stablecoins.

On Binance, a popular crypto exchange, many tokens and derivative contracts are still quoted and collateralized in tether.

Marco Bello/Getty Images

Changpeng Zhao, founder and CEO of Binance, whose exchange co-launched the Binance USD stablecoin, said he considers tether a “high-risk stablecoin” given the lack of knowledge and information about its reserves. .

“It’s a black box for most people, myself included,” he said.

Tether is pegged to the US dollar by holding an equivalent amount of reserves that include commercial paper – or short-term corporate loans – bank deposits, precious metals and government bonds. Tether has not disclosed its reserve investments in detail, a move that worries some investors who say the company may be holding investments it cannot quickly convert to cash.

Regulators fear that if investors buy back en masse, the company will have to sell off these traditional assets in order to return customers their money, which could trigger a fire sale that could destabilize financial markets.

Tether reached an $18.5 million settlement in 2021 with the New York Attorney General. The attorney general’s office said the companies made several false public claims about the dollar reserves backing Tether.

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Circle Internet Financial Ltd, the company that issues USD Coin, said that in May investors flocked to USD Coin in a flight to safety.

“A lot of people were hurt in the collapse of Terra,” said Dante Disparte, Circle’s Chief Strategy Officer. “As a result, I think markets are being shaken up and people are asking real questions about other types of crypto assets that may only be stable in name.”

Circle claims to hold its reserves only in cash and cash equivalents. The company announced that it will go public later this year through a merger with a special purpose acquisition company.

Nic Carter, a crypto-focused partner at Castle Island Ventures, expects USD Coin to become the dominant stablecoin by market capitalization. Carter said his company often funds its venture capital investments in USD Coin.


Do you think tether will continue to reign supreme as the biggest stablecoin? Why or why not? Join the conversation below.

“Everyone in crypto is generally comfortable with USDC, we believe there is no real optical risk in using USDC,” he said.

Since May 9, more than 130 major cryptocurrency holders have increased their USD coin balance by at least $1 million and decreased their tether balance by at least $1 million, according to the data. from analytics firm Coin Metrics. The change has slowed since mid-May but is continuing.

In a blog post, Tether said its redemptions are not moving directly into other stablecoins, but into the mainstream financial system like banks.

Paolo Ardoino, chief technology officer at Tether Holdings Ltd., said the company should have done a “much better job” of addressing concerns about its reserves, especially before 2021 when the company entered into the New York settlement. . He said the company was undergoing a full audit of its reserves.

“We have nothing to hide,” Mr. Ardoino said. “People were saying Tether didn’t have the money this whole time, but we were the only group that could redeem $7 billion in 48 hours.”

Nate Maddrey, an analyst at Coin Metrics, said large investors, who range from exchanges to deep-pocketed traders, took advantage of Tether’s drop to 95 cents to buy back a lot of discounted tether for $1. Large investors with at least $100,000 equity can redeem the coin for the full value of $1, pocketing the difference.

Write to Vicky Ge Huang at vicky.huang@wsj.com

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Tether Cedes Territory To Rival Stablecoins As Crypto Investors Diversify

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