Why does USDT grow faster than Bitcoin and Ethereum?

Original title: "Why does the market value of USDT grow faster than Bitcoin and Ethereum?" "

Original source: LongHash blockchain information

Perhaps different from what most people guess, the fastest growth in the market value of the digital currency field in 2020 is not from Bitcoin bought by users of Cash App, a popular mobile payment application among young people in the United States, nor is it due to DeFi (decentralized finance) technology Instead of Ethereum, which has landed and developed rapidly, it is the USD stablecoin Tether (USDT).

So far in 2020, the total market value of digital currencies has increased by 106.74%, and the top five digital currencies , the fastest growing market value is Tether, which has nearly tripled in size year-to-date, becoming the world's third largest cryptocurrency by market value, with a valuation of about 16 billion US dollars.

Tether does a "stable" business in a volatile market.

Strong demand from derivatives and emerging markets

Tether is a digital currency pegged to the U.S. dollar. Tether was created by Bitfinex to solve the problem of stable exchange rates for digital currency transactions, and it has played an extremely important role in the trading market since day one. According to Chainalysis data, digital currency transactions are the main demand for USDT. In the past six months, 97.9% of the newly minted USDT was directly transferred from Tether’s official account to the exchange.

Compared with different types of trading platforms, USDT capital inflows to derivatives trading platforms have seen the highest growth recently, compared with 180 days in the past 7 days The average growth rate was 248%.

In 2020, with the involvement of hedge funds and financial institutions, the demand for derivatives will increase. In the digital currency trading market, the most popular product is the "reverse swap contract" (BTC-based derivatives). This historical origin comes from before Tether was accepted by the market. Derivatives". With the rise of emerging derivatives trading platforms (such as FTX, Binance Futures), they have launched various "USDT-denominated derivatives" and have been recognized by retail traders. Whether it is a trading platform, a market maker or a trader, a large amount of USDT will be required to gain exposure.

TheBlock's BTC derivatives position data shows that USDT-based BTC perpetual swap positions have grown year-to-date on the Binance Futures platform The USDT derivatives market is becoming more and more vigorous.

The heavy users of digital currency come from emerging markets, usually many from Eastern Europe, Africa, South America and East Asia, the global digital currency penetration rate The top three countries are Ukraine, Russia and Venezuela.

Due to the many uncertainties brought by 2020, according to Google Trends data, the global market has paid attention to Tether in the past year The speed has doubled, and the demand for offshore finance has risen sharply.

From the data of USDT holding liquidity, it can be seen that the use of stablecoin Tether nearly 5 billion US dollars is classified as non- Liquid ones also account for the majority. In addition to being used for market transactions, they are also considered by the market as value storage targets.

Multi-chain issuance reduces costs

With the Omni protocol Currently, most of the Tethers on the chain are in the Ethereum network. In recent years, more and more other competing public chains (such as Tron, EOS, Algorand, etc.) and Layer 2 expansion network (OMG) have issued USDT. .

The figure above shows that after the Federal Reserve expanded its own credit scale, the price of Bitcoin also rose significantly. From the graph trend Look, it is almost in the same direction as gold and US stocks.

The correlation coefficients between Bitcoin, gold and the S&P 500 index we have calculated through specific calculations have strongly confirmed this point .

Tether's CTO (Paolo Ardoino) said that the migration of USDT to the OMG network will reduce costs and slow down the congestion of the Ethereum network.

Tether also issued a $15 million privacy stablecoin in January 2020 on the side chain liquid built by blockstream, monitoring tools It is not possible to monitor its transaction details.

At present, there are more and more blockchains and protocols supporting USDT, except Ethereum and Tron, which carry the largest Tether In addition to the public chain, there are many protocols that are also issuing stable coins, such as BCH's Simple Ledger (SLP). The stable coin ecology is becoming more and more diverse to meet different segmentation needs.

Market Competition and Compliance

In addition to USDT, Currently, the largest competing stable digital currency is USDC, and there is also a decentralized stable currency Dai with over-collateralization of digital currency. At present, competing stablecoins account for about 32% of the USDT circulation market value and are gradually rising. Although they do not constitute direct competition with Tether, participants in the stablecoin field are becoming more and more diversified.

Although the stable currency business is getting bigger and bigger, the biggest challenge is compliance and cross-border supervision. After the "Paradise Documents" and hacking incidents in 2017, USDT has always been regarded as the last straw of systemic risk. In 2019, New York state prosecutors brought its parent company IFinex Inc and Bitfinex to court. In September 2020, the New York Attorney General's Office continued to conduct an in-depth investigation into Ifinex's use of Tether to make up for Bitfinex's $850 million loss in 2019. It can be seen that although stablecoins have developed into the cornerstone of the blockchain industry, they are also facing many challenges.

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