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Ultimately, the incentives for crypto entities (exchanges, funds, institutional traders) to mint or buy USDT are similar to the incentives for fiat entities to buy dollars — they’re both highly liquid. In crypto, most assets have trading pairs with sufficient depth in terms of USDT — just as worldwide assets have with dollars. Being perhaps the most liquid asset in crypto that mimics the most common money in the fiat world results in USDT being a quality medium of exchange and unit of account in crypto.
It was reported in Q4 2021, that Tether's primary "customers" are market makers, entities that provide liquidity to exchanges and profit on the spread of assets (the difference in price between buy and sell orders). Just two market makers, Alameda Research (headed by Sam Bankman-Fried of FTX and Solana fame) and Cumberland Global (a subsidiary of trading giant DRW), are the two biggest USDT minters in the markets. Together, the two entities have received >$60 billion in USDT over the last 4 years, equal to around 55% of all outbound volume — ever.
Additionally, USDT hasn’t always reflected fully-backed dollar reserves or a dollar-pegged value. Despite a solvency report released to the public in 2017 which indicated a fully-backed USDT supply, a roughly 74% backing was revealed by Tether’s General Counsel in a 2019 Supreme Court hearing in New York. The Hong Kong-based exchange lost access to $850 million following the New York Attorney General’s office arrest of two men accused of laundering money through a shadowy payment processor called Crypto Capital that Bitfinex had leveraged for banking services.
In May 2021, Tether released the first of its NY Attorney General reserves reports. These quarterly reports are required by Tether for the next two years as part of their settlement with the NYAG. What is notable is that only ~75% of the reserves are backed by "cash and cash equivalents" and less than 4% by actual cash. 65% of "cash equivalents" are in commercial paper which is more volatile and less liquid than actual cash. Fiduciary deposits formed 24% of the category, reverse repo notes 3.60%, and treasury bills about 3%. This is a far cry from a company that touted a one-to-one backing in cash just a couple years ago.
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According to CoinGecko, USDT is listed on 311 exchanges and holds ~55% of the total market cap of tracked stablecoins. The most notable exchanges include Bitfinex, Binance, CoinbasePro, FTX, Uniswap, and OKEx. Further, USDT’s market cap is over double the combined market caps of competing stablecoins USDC, Dai, BUSD, PAX, and sUSD. The availability and depth of USDT in both centralized and decentralized exchanges signals the stablecoin as perhaps the most liquid crypto asset. Further adding to its ubiquitous appeal, USDT has launched on nine prominent public blockchains — including Bitcoin (Omni, Liquid), Ethereum, Solana, and EOS.