Markets
Understanding Tether’s USDT Dominance
Stablecoins have become an essential part of the blockchain space, offering stability in a highly volatile market. Although there are dozens of stablecoins with different collateral available to investors today, Tether’s USDT remains the clear choice for most crypto users.
In this article, we explore the importance of stablecoins, focusing on USDT and its unconditional dominance.
The need for stability
Stablecoins are digital assets designed to maintain a stable value by being pegged to a reserve asset such as the US dollar, euro or even commodities like gold. They achieve this stability through several mechanisms, including fiat escrow, crypto escrow, and algorithmic stable currencies. Fiat-backed stablecoins, the most common type, back each issued token with reserves of the corresponding fiat currency, ensuring the support of a real-world asset.
While many crypto investors like a little volatility, the level seen in most crypto assets may make it difficult to use them for payments or trading. Stablecoins solve this problem by offering a stable and reliable alternative, facilitating their use in a wide range of applications, including base trading pairs, remittances, and decentralized finance (DeFi).
This has resulted in substantial growth for stablecoins, now boasting a combined market capitalization of $161 billion. The graph below highlights this significant increase, which began in 2020.
See more information: How to Buy USDT in 3 Easy Steps – A Beginner’s Guide
Market value of stablecoins. Source: Inside the block
“While some of this growth is due to growing interest in cryptocurrencies, it is primarily driven by the growing importance of DeFi and the crucial role that stablecoins play in DeFi primitives such as lending protocols and automated market makers (AMMs),” Vicente Maliepaardchief marketing officer at IntoTheBlock, told BeInCrypto.
USDT: the undisputed market leader
Despite strong competition, Tether (USDT) has established itself as the most important stable coin in the cryptocurrency market. Launched in 2014, USDT is pegged to the US dollar, with each token reportedly backed by an equivalent amount of fiat currency held in reserve.
Data from Inside the block shows that USDT, with a market cap of $111 billion, represents just over 70% of the total stablecoin market capitalization. In contrast, the second-largest stablecoin, USDC, accounts for just 21%.
See more information: 9 Best Crypto Wallets to Store Tether (USDT)
Furthermore, there are no signs of this growth slowing down anytime soon. The number of USDT transactions has increased significantly since the beginning of the year and is approaching new highs.
Maliepaard notes that USDT’s dominance is attributed to several factors:
- Liquidity and Accessibility: USDT has the highest trading volume among stablecoins and is available on most centralized platforms and decentralized exchanges as a base trading pair.
- DeFi Integration: Many DeFi protocols and platforms use USDT for trading, lending, and borrowing, allowing participation without exposure to price volatility.
- Cross-border transactions: USDT facilitates fast and cost-effective cross-border transactions, offering an efficient alternative to traditional ones Bank officer systems.
- Stable store of value: In regions suffering from hyperinflation or economic instability, USDT offers a reliable store of value.
Comparing USDT Usage on Different Chains
While USDT activity is growing across all chains, not all are created equal. Data suggests that users utilize stablecoins differently across various networks. By examining its behavior on different chains, we can see how USDT is used in different ways. Whether for trading, transferring value or acting as a stable store of value, the versatility of USDT is evident.
TRON dominates USDT transactions
TRON leads in transaction volume with a dominant share of 78%. The graph below highlights its superiority compared to other blockchain networks.
This prominence is mainly due to TRON’s low transaction costs and high availability for deposits and withdrawals on major centralized exchanges, making it the preferred option for cross-border Tether USDT transactions. Surprisingly, the runner-up is not Ethereum but Polygon, which has more than 8% of total USDT transactions.
Transaction volume comparison
Examining the stablecoin’s market share volume reveals that Ethereum’s transaction volume far exceeds its number of transactions, highlighting its role in facilitating higher-value transfers. In contrast, networks like Polygon, Optimism, and Avalanche they have a greater number of transactions, but contribute less to the overall volume, indicating their use for smaller, more frequent transactions.
Retention vs. Transaction
The average retention time of USDT on each chain further supports this conclusion. Data shows that Ethereum users typically hold USDT for 228 days, almost three times longer than Optimism holders. TRON addresses also hold USDT for an extended period of time, averaging 183 days.
These insights indicate that on Ethereum and TRON, USDT is held primarily to mitigate market volatility by serving as a stable store of value. On the other hand, in networks like Optimism and ArbitrationUSDT is often used for transactions, likely in DeFi-related applications, where quick access to liquidity and transfer speed are crucial.
The future of USDT
Stablecoins, especially USDT, play a vital role in the blockchain industry by providing stability and increasing the utility of digital assets. USDT’s recent growth across various blockchain networks solidifies its position in the cryptocurrency market. As the industry expands, the importance of stablecoins will likely increase, driven by their role in DeFi, commerce, and bridging the gap between traditional finance and blockchain.
Disclaimer
In line with the Confidence Project guidelines, this price analysis article is for informational purposes only and should not be considered financial or investment advice. BeInCrypto is committed to accurate and unbiased reporting, but market conditions are subject to change without notice. Always conduct your own research and consult a professional before making any financial decisions. Please note that our Terms and conditions, Privacy PolicyIt is Disclaimers have been updated.