Last week , Tether released its 2024 Q2 financial report. Tether’s Q2 net operating profit reached US$1.3 billion, and its profit in the first half of 2024 was as high as US$5.2 billion, a record high.
The half-year profit was US$5.2 billion, equivalent to a daily profit of nearly US$30 million, which is beyond the reach of many listed companies. But Tether, which has made so much money, may not be as prosperous as the financial report shows.
Impact of MiCA regulations coming into force
On June 31, the EU's new "MiCA" bill came into effect, which means that Tether's stablecoins are officially facing batch delisting in Europe. Crypto exchage such as Binance, OKX, Uphold, and Bitstamp have all announced the delisting of almost all USDT trading pairs in Europe due to this bill.
Competitor Circle has received legal permission from MiCA to sell its two stablecoins, USDC and EURC, across Europe.
Europe is the region with the largest crypto adoption. According to a study recently released by CoinWire, Europe’s cumulative cryptocurrency trading volume accounts for 37.32% of the global market.
Circle is taking a significant amount of market share away from Tether. The CCData report shows that after European regulations came into effect, the trading volume of USDC trading pairs on centralized exchanges increased by more than 48%.
Since its establishment in 2014, Tether, which has experienced many encryption storms and regulatory FUD, has now grown into a behemoth. Will Tether be "too big to fail" in the future, or will it still be unable to escape the risk of being "out"?
USDC trading volume has significantly surpassed USDT many times
As the bull market begins, the market value of stablecoins continues to grow. According to the latest report released by CCData Research, as of the end of July, stablecoins have been rising for 10 consecutive months.
USDT, as the largest stablecoin by market capitalization, is also growing, dominating nearly 70% of stablecoin transactions. But a signal that cannot be ignored is that USDC, USDT’s current largest rival, has surpassed USDT in monthly trading volume for the first time in December 2023. In 2024, USDC’s market value and trading volume have also increased significantly, especially in terms of trading volume. Significantly more than USDT.
According to data jointly released by Visa and Allium Labs, on March 24, 2024, the trading volume of USDC at the close of the week was almost five times that of USDT. On April 21, 2024, USDT's weekly trading volume shrank to US$89 billion, while USDC increased to US$455 billion.
According to Kaiko’s report analysis, the possible reason for USDC’s increasing popularity is that users are increasingly adopting and preferring regulated stablecoins.
The relatively compliant and regulated nature of USDC also makes it the first choice for large institutional clients to enter the crypto field.
This year, BlackRock launched the tokenized fund BUIDL. BUIDL is linked to the U.S. dollar at a ratio of 1:1, and holders can obtain a "security" similar to an interest-bearing stable currency. In order to ensure that investors can purchase/redempt stablecoins 24/7/365, BlackRock chose to cooperate with Circle to establish a USDC liquidity pool controlled by smart contracts for investors.
After European regulations came into effect in July, USDC trading volume surged again. CCData data shows that after centralized exchanges removed Europe's USDT trading pair, the trading volume of USDC trading pairs increased by 48.1%, reaching a record high of US$135 billion.
In addition to the growth opportunities in centralized exchanges, the growth of USDC on some active public chains this year cannot be ignored.
In August last year, Circle received investment and support from Coinbase, and Coinbase announced that it would be launched on 6 new chains.
On the Base public chain of Coinbase, USDC accounts for 91% of the total stablecoin supply. Base does not support USDT. According to data on June 18, the supply of USDC on the Base chain in the past 90 days once increased by more than 1,000%.
On the Solana chain, Bankless shared a set of data on the
Bankless said the reason for USDC’s dominance on Solana is the strategy of Circle and the Solana Foundation to incentivize developers and promote the integration of trading platforms.
For example, platforms such as Solend Protocol and Superteam in the Solana ecosystem provide developer rewards in the form of USDC, as well as the cross-chain transfer protocol (CCTP) launched by Circle on Solana and Circle's Web3 service rewards, all of which are promoting the growth of USDC on the Solana chain. .
After Europe's crisis, compliance issues still a potential bomb?
The point of FUD Tether due to regulatory compliance issues has actually never ceased.
In addition to the European "MiCA" bill, the "Lummis-Gillibrand Payment Stablecoin Act" proposed by the US senator in April this year has also been pointed out by many institutions as a threat to Tether.
The Lummis-Gillibrand Payment Stablecoin Act requires the issuance of stablecoins exceeding $1 billion, implements the same strict supervision as banks, and encourages more banks to participate in the stablecoin market.
Rating agency S&P Global pointed out that currently most U.S. dollar stablecoin issuers, including USDT, which has the largest market share, are not subject to U.S. regulations. However, if the bill is finally enacted, it may prompt more banks to enter the stablecoin market and affect Tether's dominant position.
A recent JPMorgan Chase report also said that cryptocurrency regulations in the United States have been strengthened in recent months. The payments stablecoin bill is most likely to be passed before the upcoming presidential election, which would benefit compliant U.S. stablecoins and threaten Tether’s dominance.
The Deutsche Bank report also raised questions about Tether’s operational stability and transparency.
Although Tether trading activity mainly occurs in emerging markets outside the United States, the United States remains one of the most important markets in the crypto space. If Tether does not respond, it may miss out on the market.
Or based on understanding of regulatory compliance trends, or based on competitive considerations. This year, many encryption company founders also warned that the next regulatory hammer may fall on Tether.
In May this year, Ripple CEO Brad Garlinghouse broke the news on a podcast that since the collapse of FTX and the imprisonment of former CEO SBF, as well as the recent conviction and sentencing of former Binance CEO CZ(CZ), the next regulatory target of the US SEC is Tether.
Brad was subsequently countered by Tether CEO Paulo Ardoino, and the two got into a "war of words" for several days.
Ripple also announced the launch of a stablecoin pegged to the U.S. dollar this year. Paulo believes that Ripple is maliciously slandering Tether as a competitor.
But Brad insists that it was not a deliberate attack. He believes that the US government has made it clear that it wants to strengthen its control over issuers of stablecoins backed by the US dollar. Therefore, Tether, as the largest player, is on their radar.
In March this year, after Arthur Hayes’ family office Maelstrom invested in the new stablecoin protocol Ethena, Arthur Hayes also published a long article on his personal blog discussing why the U.S. Federal Reserve, the U.S. Treasury Department, and large U.S. banks with political connections want Destroy Tether.
Arthur Hayes believes that Tether’s full-reserve banking model runs counter to the Fed’s stated goal of reducing the amount of bank reserves to curb inflation.
And Tether is too big. Tether is now one of the largest holders of U.S. Treasuries. The growth of Tether and similar stablecoins serving the cryptocurrency market poses risks to the U.S. Treasury market.
Additionally, Tether is so profitable that it will attract competition from banks.
A speculative balance sheet and income statement produced by Maelstrom analysts for Tether shows that Tether's revenue per employee is $62 million, which is difficult for the eight "too big to fail" banks in the United States, represented by JPMorgan Chase. Comparing Tether's profitability.
It is expected that in the next year, in addition to the United States, important crypto regions such as Hong Kong, Singapore, Japan, the United Kingdom, and the United Arab Emirates will gradually launch comprehensive stablecoin regulatory rules.
After global regulatory regulations are gradually implemented, it may be difficult to determine whether Tether really faces the risk of being eliminated.
Some people believe that the US government has no reason to trouble Tether.
Checkɱate, an analyst at Glassnode, said that the USDT issued by Tether is essentially equivalent to the U.S. CBDC. He believes that the existence of Tether has the tacit approval of the U.S. government. “USDT absorbs the U.S. government’s national debt, thus supporting the U.S. finance.”
Regarding the relationship with government supervision, Tether CEO Paulo also stated in his rebuttal to Brad that Tether has been cooperating with law enforcement agencies in different countries.
Blocked 339 requests in the past 3 years, 158 of which were in cooperation with US law enforcement.
Some people believe that USDT, like the US dollar, is misused and has little to do with the issuing institution. As long as Tether cooperates with law enforcement agencies to freeze it, the risk is not as high as imagined.
Tether currently has no clear and specific stance on how to deal with the EU's withdrawal and potential threats in other regions, but Tether may be trying to get rid of unilateral control by the United States.
In June this year, Tether made a strategic investment of US$18.75 million in XREX Group, a compliant blockchain financial institution.
XREX Group founder Huang Yaowen revealed in a media interview that after this investment, Tether and XREX will launch XAU1 through cooperation with the Unitas Foundation.
XAU1 is a unit currency that is excess reserved by Tether Gold (code XAUt) and is linked to the value of the U.S. dollar. It provides a stable financial alternative for stablecoin users and is a hedging tool against inflation.
The purpose of launching XAU1 is to gradually make the U.S. dollar neutral while maintaining the U.S. dollar pricing that everyone is accustomed to, and not be subject to unilateral control by the United States.
"Because Tether clearly knows that the control of the money earned through U.S. debt interest is in the hands of the U.S. Federal Reserve and not itself, so it spends 80%-85% of the money earned from Swiss gold minting. gold."
In addition, Tether is also seeking business growth beyond stablecoins and expanding into multiple areas such as Bitcoin mining, AI, and education.
Or in response to regulatory pressure, Tether is also increasing lobbying expenses. According to information from the non-profit organization OpenSecrets, Tether parent company iFinex increased lobbying expenditures by more than 150% in 2023.
There is no shortage of predators in the "fat" of stablecoins
In addition to regulatory risks, Tether has no shortage of challengers.
At the beginning of last year, BUSD, which had been the third largest stablecoin, withdrew from the stage of history overnight due to regulatory pressure from the US SEC. However, the stablecoin market soon welcomed multiple fill-in players.
Web2 payment giant PayPal launched the stablecoin PYUSD, and the stablecoin FDUSD, which is regarded as Binance's alternative to BUSD, also quickly emerged. In addition, old blue-chip DeFi such as Curve, Aave, and Frax are actively launching native stablecoins; some new forces of interest-bearing stablecoins leveraging LSD and RWA have also been born.
This year, the aforementioned BlackRock launched BUIDL, a tokenized fund similar to interest-bearing stablecoins. To some extent, it also took a fancy to the profitable business of stablecoins.
In addition, there are some innovative stablecoin protocols that are still rising strongly this year. Ethena's USDe is a new stablecoin supported by Ethereum derivatives. It was launched on the mainnet in February. Within half a year, its market value exceeded US$3 billion, making it the fourth largest stablecoin after Dai.
The investment organization behind Ethena is like a novel. In February this year, Ethena received funding co-led by Dragonfly, Brevan Howard Digital and Maelstrom, the family office of BitMEX founder Arthur Hayes, with participation from PayPal Ventures, Franklin Templeton, Avon Ventures, Binance Labs, Deribit, Gemini and Kraken. It raised US$1,400 in financing and its valuation reached US$300 million. Last July, Ethena also received $6.5 million in funding led by Dragonfly.
This may also explain that some market players and capital believe that although Tether and Circle currently occupy almost most of the stablecoin market, there is still a huge possibility of adjustment in the stablecoin landscape, in terms of compliance, centralization risks, and returns. Distribution to users and other aspects provide disruptive opportunities for latecomers.
