Stablecoins form the core of countless new economic tools that Tether believes will be essential to most modern economies in the coming decades. They eliminate redundant and inefficient layers of bloat and middlemen designed to extract value from financial transactions. Given that financial transactions are the lifeblood of an economic system, any tax on the basic structure of payments is a tax on the entire economy as a whole.
The money of the future will restore this captured value back to the people. It will empower individuals to save, earn, and do more.
Prioritizing Risk Management Amid Growth
The last several weeks have been a significant time for the industry, and for Tether. In the wake of bank failures across the US and Europe, Bitcoin has emerged ready to do what it was always built to do - protect people's wealth against financial system failures. However, we have also seen other stablecoins face major challenges due to their reserves being concentrated among failed US banks or in financial distress because of inappropriate risk management.
Contrary to the irresponsible reporting by Bloomberg, Tether wants to unequivocally re-iterate that it has no exposure to Silvergate, Silicon Valley Bank and Signature Bank. The title and tone of its recent article would lead the average reader to believe that this was somehow false.
However, several paragraphs into the article Bloomberg states the following: "The offshore stablecoin provider has never been sanctioned, and therefore doing business with the firm wouldn’t be illegal, according to Alma Angotti, who held senior enforcement positions with the Securities and Exchange Commission and Treasury".
After the clickbait title, even the journalist admits that there wouldn’t be any issue for Tether and Signature Bank to collaborate, yet it fails to explain that Tether didn’t have an account with Signature Bank.
It is shocking that Bloomberg continues to rely on misinformation and clickbait in its attempt to stay barely relevant.
Following the SVB collapse multiple stablecoins, both fully reserved and "decentralized" lost their pegs. While most have since recovered due to the US Government insuring all depositors of SVB, it has called into question the risks stablecoin users face while holding a stablecoin that has a significant jurisdictional concentration in one country or banking system.
Concentrating reserves can be a useful tool to try to expedite growth, but as it comes with unavoidable jurisdictional risks it is unsuitable for a stablecoin that plays a central role in the industry. Tether views risk management as coming before artificially quick growth. We hope our competition will improve their risk management and reliability as it’s vital that the stablecoin industry remain diverse and competitive.
Tether has gained market cap for the entirety of 2023, but following the failure of SVB, Tether gained roughly $6 billion in a matter of weeks.
Consequently, Tether's competition has faced substantial drawdowns in their market cap as users redeemed their holdings.
Similarly, while Tether has always maintained a large lead over its competition in terms of volume, this trend continues even during heightened volatility. This is notable because volumes actually increase during periods of crisis for assets as users rush to exchange the asset for others which are thought to be more secure.
These trends may mark a shift in the market's preference for stablecoins. If these trends continue, it will signify that crypto users prefer non-US stablecoins and stablecoins which have diversified their reserves to protect holders against banking failures.
Risk management for stablecoin issuers clearly includes reserve composition but also extends to jurisdictional risks. Tether's early focus on jurisdictional diversification has enabled it to navigate these market conditions more smoothly than many of its competitors.
Having said that, market conditions continue to change and Tether prioritizes closely monitoring global economic and regulatory changes to protect USD₮ users and all of the decentralized protocols which rely on USD₮.
It is likely that these changing preferences for stablecoins will not only yield increased adoption and usage of Tether, but will result in USD₮ becoming the primary stablecoin used in De-Fi.
Stablecoins and De-Fi
Tether believes that people around the world should have access to financial services, period! However, currently it is the wealthy who have full access to the various financial services and products the market offers and are helped/protected more by the traditional financial intermediaries in case of crises.
De-Fi represents a compelling model for how to expand financial services to the rest of the population. Additionally, the current model relies on layers of financial intermediaries so that the very act of using financial services takes an increasingly large cut of users' assets. This is unacceptable.
While USDC has typically dominated De-Fi, we see its concentrated exposure to US banking risk as compromising its own promise of decentralization. In light of these recent risks, we see USD₮ as the ideal tool for the unbanked and emerging markets to use De-Fi without exposing themselves to friction and volatility. There are many reasons we think Tether will begin to be the number one stablecoin used also in De-Fi across many chains.
USD₮ Integration and Adoption Across Protocols and Blockchains
Tether is one of the first coins to be brought into new protocols for liquidity. That is because Tether, which is often called the “lifeblood” of the crypto economy, offers an enormous pool of liquidity and assets which crypto users have trusted for years to these protocols. Tether is the largest and most liquid stablecoin by a significant margin, and many users prefer to use stablecoins as one of their primary trading pairs when they use De-Fi. USD₮ users can use various secondary markets and De-Fi protocols to make payments, or as a trading pair against thousands of cryptocurrencies.
USD₮ is integrated in 13 widely used blockchains. USD₮ is accessible to developers across a variety of environments, no matter where they decide to launch their protocols. Additionally, as many De-Fi protocols are now deployed across multiple blockchains simultaneously, USD₮ provides a way for developers to ensure assets from one chain can more seamlessly swap to a different chain.
USD₮ is the most widely adopted, widely integrated, and most liquid stablecoin in crypto.
Decentralization, Stability, and Diversification
As this recent banking crisis has demonstrated, jurisdictional concentration is an existential risk to a fully reserved stablecoin. If a stablecoin is going to become widely used in De-Fi, it must not carry over centralization risks with it, or it eliminates many of the benefits of these various protocols.
Tether offers smart reserve compositions (holding mainly treasuries which aren’t exposed to bank bankruptcies, etc) and layers of international banking partners to mitigate jurisdictional risk.
Further, while some people may think that an algorithmic stablecoin could solve these challenges because it doesn’t have traditional reserves, history has shown us these stablecoins are actually far more risky, and far more unstable. There have been no large successful implementations of these designs. Fully reserved stablecoins are the only stablecoins which have held their value over long periods of time.
Current Adoption of USD₮ in De-Fi
There are many examples of USD₮’s pivotal role in the growing De-Fi space. One of those examples is Flash Loans, which allow users to borrow a wide range of tokens without posting collateral to back those loans, as long as the collateral is automatically returned within the same transaction.
USD₮ is also powering a variety of lending projects. On Aave, one of the largest and most widely used lending protocols, USD₮ frequently offers the best yields for lenders, although this fluctuates based on market conditions.
Integration Across De-Fi and Exchanges
Tether is the most widely used trading pair on exchanges bar none. This provides it not just with deep liquidity, but deep usability on the various exchange platforms users want to access.
This makes it so USD₮ can seamlessly be transferred from the De-Fi ecosystem to exchanges without needing to perform extra steps such as converting USD₮ into a different asset. Most exchanges support USD₮ trading pairs for the vast majority of assets they list.
Transparency of Reserves
Tether has been a leader in reserve transparency. We were the first to publish a reserve attestation during a time where other companies concealed information about their reserves. Tether's attestations continued to grow in detail and scope as we revealed more and more details about our reserves.
Tether has also continually sought after the most highly regarded auditors that it could find. Major audit companies are not providing full audits to companies in the crypto industry and therefore also to stablecoin companies due to accounting and regulatory uncertainties, which is why our competitors also do not have full audits (despite trying to secure them). In spite of this, we were able to secure BDO Italia to provide regular attestations regarding Tether's reserves. BDO Italy has been investing to attract talent with the appropriate technical expertise to enter this “new” market but hiring and developing internal capabilities for audit companies is extremely challenging in the current market, since expertise tends to move to companies actively building the future of the financial industry. We believe the trend is set and audit companies that aim to be successful in the future will need, sooner than later, to invest and acquire expertise.
In addition to leading reserve transparency in the stablecoin industry, Tether continues to make substantial profits which contribute to its excess reserves backing USD₮. Latest figures indicate that net operating profit overshadows the last quarter of 2022, where Tether recorded a profit of $700M .The outlook for Q2 is also positive.
Helping USD₮ Users Recover Funds
Tether has been able to help mitigate hacks in the De-Fi space, which can provide additional confidence for users who use USD₮ to interface with De-Fi protocols.
When Poly Network was hacked, Tether responded swiftly and froze $33 million in USD₮ moments before it was going to be deposited into Curve, which may have resulted in the loss of these funds.
Following the KuCoin hack Tether froze USD₮ worth $33 million of users funds which were stolen. After a Yearn Finance hack Tether was able to freeze $1.7 million which was stolen from users. Tether was even able to freeze $300k worth of USD₮ which was stolen from a users personal wallet when they exposed their private key via evernote. In fact, in well over 160 investigations across four continents, Tether has currently frozen over $720 million as a result of various investigations.
What Tether's History can Tell us About the Future of De-Fi
Like most crypto companies, Tether's early history was filled with experimentation and challenges as it navigated what it means to function in a nascent decentralized financial system. Tether faced many challenges but ultimately overcame them to become the stablecoin of choice for crypto traders, developers, investors and users in emerging markets.
Navigating these early challenges taught Tether the value of redundant, jurisdictional distribution and these principles are part of why USD₮ is well positioned to be the primary asset for De-Fi.
De-Fi needs a stablecoin which doesn't force users to simply inherit bank risk. Doing so would defeat the entire purpose of decentralized financial applications!
Tether plans to continue to support the industry, users, emerging markets, and De-Fi protocols as we navigate the next stage of growth of this industry as a global community.
Read more: https://tether.to/en/why-tether-will-lead-in-de-fi/
All Comments