Analysis

Tether’s Grip Slips: USDT Stablecoin Market Dominance is Down 30%

Tether's market dominance has fallen considerably over the last several months. What does it mean?

It’s been an interesting several months for Tether, the world’s largest stablecoin by marketcap.

Following a massive fluctuation in Tether’s price this October, Bloomberg reported that Tether appeared to be solvent–an extremely positive piece of news for the company, whose solvency has been in doubt for over a year.

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Still, the price dip in October managed to do some serious damage to the company and its coin. A recent report from research firm Diar claimed that Tether’s dominance in the stablecoin market had sunk below 70 percent for the first time.

Perhaps the most important question that arises from this statement is this: is Tether losing popularity, or is the stablecoin market as a whole continuing to grow while Tether stays the same?

There is some data to suggest that the former rather than the latter, although it is definitely true that the stablecoin market has grown as a whole–Diar reported that total stablecoin kicked off 2019 at $2.2 billion, almost double of the $1.3 billion total market supply at the beginning of 2018.

The Trouble Really Started with the Price Dip in October

Tether’s dominance took a major hit in October when its value suddenly took a dive from around $1.00 to as low as $0.85 on some exchanges. It took weeks for the coin to recover to its target value of $1.00.

The primary cause of the dip seemed to be a sort of “bank-run” on Tether starting at the beginning of October. Token holders redeemed more than 800 million USDT for USD throughout the month, ultimately causing a 16 percent slip in market dominance before the month was over.

The timing of the dip was particularly poor for Tether, as two new major stablecoins had just arrived on the scene a month prior: Circle and Coinbase’s USDC, the Gemini Dollar (GUSD), and the Paxos Standard Token. Previously, Tether only had two truly viable rival coins: Maker’s Dai (DAI) and TrustToken’s TrueUSD (TUSD).

The mid-October dip in Tether’s price provided an opportunity for these rival coins to gain greater footholds in the market at large. “Tether has definitely lost market share in terms of the supply of USD allocated to different stablecoins,” said Coinmetrics creator Nic Carter to CoinDesk, adding that USDC and TUSD were the coins that benefitted the most. Coinmetrics is a blockchain data research site.

Indeed, before the mid-October dip in Tether’s price, “Tether consisted of about 94 percent of the total supply in stablecoins; that collapsed to 83 percent after the run,” Carter explained.

The decrease in Tether’s market dominance was also notable from trading data on exchanges. Indeed, during the price dip, OKEx, Huobi, and a number of other exchanges hurried to list alternative stablecoin options for their users.

However, Carter noted that the trading volume data showed a less robust trend than market cap data. “Exchange volume is small for alternatives because traders aren’t really accustomed to them yet,” said Carter, adding “tether still is considered a useful (albeit risky) coin for traders to get fiat-denominated risk. It just has the accumulated financial infrastructure.”

On-chain transaction data also showed a decrease in Tether transactions throughout the month of October, while other stablecoins saw an increase in on-chain transactions.

Tether Destroyed $500 Million in USDT at the End of October

Further contributing to the coin’s decrease in dominance was the decision to destroy 500 million units of USDT at the end of the month of October, perhaps in an attempt to strong-arm the price of USDT back to $1.00. At the time, the 500 million USDT represented more than half of the total amount of USDT in circulation.

“Over the course of the past week, Tether has redeemed a significant amount of USDT from the circulating supply of tokens. In line with this, Tether will destroy 500m USDT from the Tether treasury wallet and will leave the remaining USDT (approx 466m) in the wallet as a preparatory measures for future USDT issuances,” read a statement from Tether about the token burn.

“Conceptually, the Tether issuance and redemption process is outlined in the Tether whitepaper, with issuances and redemptions visible through observing the Tether treasury balance on the OMNI blockchain.”

An Opaque Past Haunts Tether

Despite Tether’s attempt to be transparent about the token burn, the company has come under major scrutiny in the past for its lack of transparency. Serious questions have arisen around Tether’s solvency because of the company’s failure to provide evidence of a legal audit of its accounts.

However, Finance Magnates reported earlier this month that Bloomberg was among a growing list of entities willing to vie for Tether’s solvency, although for some, this was not enough. “When we are talking about money, it’s really not enough to just talk to a reporter to convince them,” Elizabeth White, CEO of the White Company, said in an email to Finance Magnates at the time.

Rather, “the convincing has to be done directly to the public and holders of Tether. While Bloomberg is certainly a reputable publication, it is not a regulator or a user of Tether, and the crypto community deserves to have this alleged ‘proving information’ shared with them.”

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A Slippery Slope

Despite the bit of positive news, Tether’s dominance fell to a three-year low near the end of December. “Just three months ago, Tether’s dominance was still hovering around 96%,” a report by The Block said at the time.

From there, things just continued to get worse.

On January 10th, Tron overtook Tether as the new eighth-largest cryptocurrency in terms of market cap in the world (although it has since risen to the 6th-largest place, leaving Tron in the dust once again.)

Then, On January 14th, research firm Diar published a report saying that Tether’s dominance had officially slipped even farther with only 69 percent dominance on the same day.

“While Tether remains to control 69% of the supply, Circle/Coinbase-backed USDC has taken over 13% of the stablecoin market in less than 3-months – a cool tally of over $372Mn,” the report read, further confirming Carter’s statements at the end of October. “In total there has been a 26% growth in outstanding stablecoins since the start of November following the mass Tether burn.”

However, it’s important not to undercut what Tether has managed to salvage after its rough end to last year. “Still, cryptocurrency trading is still highly concentrated on Tether,” the report read. “January so far has seen daily Tether trading of $4Bn while USDC is averaging under a tiny $20Mn according to data collected by Diar.”

”Tether Was Never a Good Product”

On a slightly more dour note, however, Diar added that “this too however (sic) is likely to go the way of outstanding supply as more cryptocurrency exchanges begin to add more stablecoin pairs.”

Why is this? Technology Futurist and Principal Consultant at Rocky Mountain Technical MarketingJeff Stollman told Finance Magnates that the answer is simple: “Tether was never a good product.”

Jeff Stollman, RMTM.

“It lacks the transparency needed by users to be confident that it will hold its value,” he explained. Indeed, “Tether has never made its reserves public. And their resistance to doing so has raised further concerns about their ability to withstand a speculative attack.”

Stollman went onto say that the only reason that Tether achieved market dominance in the first place was by virtue of the ‘first-mover’ advantage. “Tether achieved early dominance in the stable-coin market just because it was one of the first products and the Tether team was successful in getting it accepted at various exchanges,” he said.

“It provided a relatively stable way to store value in a crypto account that could be easily exchanged for other cryptocurrencies purchased or sold for investment purposes. Using Tether was both cheaper and faster than going in and out of cash.”

However, “now that other, more transparent, stablecoins are on the market, there is little reason to use Tether. Migration to others has been slow only because it is necessary for exchanges to select stablecoins that they will support in trading pairs before other coins can be used.”

The Future (…?)

What may be very telling is that throughout all of this–the dip, the slip, and even Bloomberg’s announcement that Tether is most likely solvent–is that Tether has remained mostly silent. All of four tweets have been posted by the company since the beginning of October. The only one acknowledging any of the goings-on was the announcement of the token burn.

The other two refer to a new bank account:

And a newly-designed verification platform:

Certainly, these two announcements are good news for the company. But will Tether’s attempts to turn itself around be fruitful?

Only time will tell.

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