(Bloomberg) – Careful, Tether. Serious competition could finally come your way.
Binance, the world’s largest cryptocurrency exchange, will begin issuing stablecoins “in a few weeks to a month or two,” said CFO Wei Zhou in a telephone interview. Traders use these coins with lower volatility to facilitate transactions and funds during wilder periods So far, Tether has been the undisputed king of the market.
While around 60 stablecoins tried to battle Tether, they didn’t gain much traction. Tether accounts for 98.7% of stablecoin’s trading volume, said Paolo Ardoino, chief technology officer of rival crypto exchange Bitfinex, which has the same owners as Tether, in an email. However, the dominance of Malta-based Binance in the exchange business could lead to entry into stablecoins being more successful than others.
“A stablecoin issued by Binance would certainly jeopardize Tether’s value proposition,” Kyle Samani, co-founder of Austin, Texas-based crypto hedge fund Multicoin Capital Management, said in an email.
The exchange’s first low volatility coin, Binance GBP, will be denominated in the British pound and 100% covered, said Zhou from Amsterdam. Binance will announce the bank it is working with once the stablecoin currently being tested hits the market, he said. The company will make money on fiat deposit interest like Tether does, Zhou added.
Binance will introduce additional coins pegged to other currencies, although there are no plans to introduce a US dollar-backed stablecoin, Zhou said. It will also work with partners who are spending their own stablecoins on the Binance Chain Ledger, a company-backed blockchain, he said. The startup Stably has just issued a direct competitor to Tether, which is supported with US dollars over the distributed network.
The goal is to make stable coins available for more of the world’s currencies such as the euro and the yen, Zhou said.
“From a user perspective, only certain parts of the world are using the dollar,” Zhou said. “Other users are using other currencies, and we believe that stable coins should reflect that too.”
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The competing tokens could reduce Tether’s market share at Binance – a critical market for the coin. Today, tether accounts for more than 50% of the stable volume of coins on the exchange, Zhou said. And Binance is one of the largest – if not the largest – owners of Tether in the world, according to Tether’s Rich List.
The expansion is happening while the companies behind Tether find themselves in a difficult legal environment, and it has recently been found that Tether is only 74% – rather than fully – covered by cash and securities. Binance plans to 100% secure its stablecoin and offer more transparency, Zhou said. That could encourage traders to switch loyalty.
“Binance could also work with an auditor to provide assurance that the tokens are fully secured and easily redeemable,” said Samani. “Given the recent events with Tether, these representations would be a compelling reason to use Binance’s stablecoin.”
Binance is trying to get more valuable tokens into its Binance chain, a recently unveiled digital ledger that competes with companies like Ethereum. It uses Binance’s own token called the BNB to activate a wide variety of functions. As supported stablecoins become more widely used, this should improve the use of BNB as well.
“This would have a positive impact on the BNB just because it would likely lead to more volume and ultimately more revenue for Binance, and in theory it would steal USDT market share,” said Tether, Jeff Dorman, Chief Investment Officer at Arca. said in an email. “But Tether has proven to be pretty resilient to competition, and I’m not sure the goal is to steal market share – growing the pie is the goal.”
At the moment, Tether isn’t worried.
“As the crypto market matures, competition is welcomed to accelerate the transition from stablecoin to a broader market,” Ardoino said in the email.