What explains Tether’s $ 25 billion market cap surge?

Tether’s market capitalization hit $ 25 billion today, with Bitcoin trading below $ 40,000 on the price charts. In fact, the stablecoin is one of the most heavily traded assets in the entire cryptocurrency, with its trading volume even surpassing that of bitcoin.

Source: CoinMetrics

Tether’s growth was tremendous in 2020, with the stablecoin having a 72% market share. In addition, the USDT rose 455% year over year from $ 3.2 billion in December 2019 to $ 17 billion in December 2020.

The reason Tether grew

While speculators have been speculating on Tether’s credibility all along, the stablecoin has managed to break through the noise and grow. In fact, given the demand for Bitcoin, it makes sense to look at Tether’s growth.

Recently, institutions have found their preferred alternative assets and are investing heavily in them. This onboarding requires one of two things, USDT or USD. While it is clear that the USDT market far outperforms the USD market, it is also clear that the institutes did not take advantage of the fiat markets.

This partly explains Tether’s growth in 2019 and even 2020. As for 2021, as Bitcoin blew through the roof in the first and second weeks of 2021, more and more USDT was minted.

In 2021 alone, Tether minted a record of $ 2 billion in a single week; the week before that, it minted $ 1.5 billion. With a market cap of a whopping $ 25 billion at press time, it can be seen that Tether is up 19% in just 15 days.

Alameda Research’s Sam Trabucco recently shared a pretty interesting take on this. He found that many people who buy Tether do so not by creation, but by selling or buying through trade. Since the market is volatile, the tether connection also varies.

Alameda can arbitrate these opportunities through the direct creation / redemption of Tether. This helps stabilize the peg and at the same time benefits the arbitrageurs.

Sam Trabucco added:

“Other stablecoins like USDC don’t have nearly as volatile rewards – that’s because the creation / redemption process for USDT is more complex and fewer companies can actually do it. Because of this, as I mentioned above, many who want to go into the markets and fail, and when the USDT rises above $ 1? A sophisticated company like Alameda with great setups on all exchanges and bots to run more than one leg at a time will want to sell! And we do – A LOT. “

While the New York Attorney General’s lawsuit against Tether is still ongoing, there is no telling what direction it will take. Regardless of the decision, however, Tether could get away with it because the stablecoin is not available on one blockchain, but on multiple chains. At the moment, Tether is on ETH, Omni, TRX, EOS, OMG, Liquid, etc. This is called dominance.

Comments are closed.