Author: Nancy, PANews
Stablecoins are the liquidity cornerstone of the crypto ecosystem, so competition is unprecedentedly fierce. Under the fierce offensive of new and old players, Tether, the "big brother" on the list, began to accelerate the construction of diversified businesses, and the market structure has also quietly changed due to regulatory compliance trends.
New profits come from traditional assets, accelerating the exploration of diversified businesses
Tether is undoubtedly the "money-making king" of the stablecoin track. According to Tether's second-quarter audit report, Tether Holdings' net profit in the first half of 2024 reached US$5.2 billion, a record high. Among them, the net operating profit in the second quarter was US$1.3 billion, setting a record high quarterly profit to date. Judging from this report card, Tether's huge profits are close to many traditional giants, including about 72.5% of Wall Street giant Goldman Sachs' profits in the first half of the year (US$7.17 billion) and 80.2% of global wealth management giant Morgan Stanley's profits in the same period (US$6.48 billion). But Tether is a team of only about 100 employees, which means that each employee has created a profit of US$50 million in half a year. In contrast, Goldman Sachs and Morgan Stanley have about 45,000 and 80,000 employees respectively.
However, Tether's profitability as a "money printing machine" is mainly due to the high returns of traditional assets. According to Tether's data, the company's holdings of U.S. Treasury bonds exceeded US$97.6 billion, reaching a record high. It is also one of the top three buyers of U.S. short-term Treasury bonds in the world, with a larger scale of Treasury bonds than Germany, the UAE and Australia. At present, the rise in U.S. interest rates has led to a significant increase in Treasury bond yields, and Tether's profitability has also been improved.
Moreover, although USDT still has an absolute advantage, accounting for nearly 70% of the market share and having more than 300 million users worldwide, it is facing siege from competitors. According to DeFiLlama data, the market value of stablecoins has increased by nearly 28.4% to US$166.96 billion since the beginning of this year (August 15). During this period, although the scale of other competing products is still far behind USDT, their growth rate has exceeded that of USDT by nearly 27.2%, such as USDC's growth of about 42.3%, USDDe's growth of more than 239.5%, and PYUSD's growth of nearly 227.2%.
Tether has also proposed countermeasures. In the field of stablecoins, Tether has not only adjusted the way its products are supported in different blockchains, giving priority to supporting community-driven blockchains, but also launched a new synthetic dollar platform XAU₮ in June this year, which is backed by real physical gold stored in Switzerland. TetherGold is over-collateralized, but CoinGecko data shows that as of August 15, the market value of XAU₮ reached US$600 million, which is only 0.5% of the size of USDT. In addition, Tether has also cooperated to carry out multiple USDT-related businesses to expand its influence, such as Tether and Uquid jointly launched 1 USDT store, which received more than 47,000 transactions within 10 days of going online.
On the other hand, Tether has begun to vigorously promote its vision of being a "financial ecosystem builder" through multiple measures. Since Tether announced in April this year that it would set up four major departments, namely data, finance, energy and education, to expand its business scope beyond USDT products, it has launched an intensive offensive in the past few months.
For example, in emerging markets such as AI, in addition to developing decentralized AI models, Tether has also invested in biotechnology company Blackrock Neurotech and data center operator Northern Data Group, with an investment of more than US$2 billion.
This week, Tether CEO Paolo Ardoino emphasized that Tether has sufficient funds, with a cumulative profit of about $11.9 billion in the past two years, and can currently earn 5.5% profit from its reserves. The company plans to enter unknown fields such as AI to compete with companies such as Microsoft, Google and Amazon. In addition, Paolo Ardoino also recently revealed that he is preparing to launch a new open source project. Although he did not release more specific information, he emphasized that this will be an important part of Tether's future ecosystem.
In terms of education, Tether has also reached a cooperation with the Vietnam Blockchain Association to jointly promote blockchain and AI education in Vietnam, signed a memorandum of understanding with BTguru to promote digital asset education in Turkey, and reached a cooperation with Taipei University of Technology to launch the "Blockchain and Digital Assets" education program.
In addition, Tether has also increased its investment in the ecosystem, and its investment department is expected to invest more than $1 billion in the next 12 months. For example, Tether spent $100 million to acquire shares of BitDeer, a listed mining company, and became the second largest shareholder. Tether also made a strategic investment of $18.75 million in XREX Group, a compliant blockchain financial institution, to promote cross-border payments based on USDT in emerging markets and innovate regulatory technologies.
Tether may withdraw from the European market due to new EU stablecoin regulations, increasing compliance spending
Compliance issues have always been a thorny issue for Tether. Especially now, as the EU's "Markets in Crypto-Assets Act" (MiCA) on stablecoins officially comes into effect, stablecoins with more than 1 million transactions per day or a total value of more than 200 million euros (about 215 million US dollars) need to obtain relevant authorization to operate in the EU, so stablecoins including USDT face compliance challenges.
Affected by this, many crypto projects have taken countermeasures. For example, the crypto exchage Bitstamp has removed Tether's Euro stablecoin EURT and other stablecoins. An article on the Bretton Woods Committee blog also pointed out that stablecoins that do not comply with MiCA regulations will "disappear" from the EU market in the short to medium term. "Increasingly stringent stablecoin regulation may pose a major challenge to Tether's market dominance. If these new regulations cannot be complied with, Tether's dominance in the stablecoin market will be threatened." JPMorgan also pointed out in a research report.
According to the information on Tether's transparency page, as of August 15, the net circulation of Tether's euro stablecoin EURT exceeded 28.26 million euros, second only to USDT. In contrast, as USDT's biggest competitor, Circle has taken the lead in becoming the first global stablecoin issuer to be licensed in the European Union.
Ardoino responded that Tether has officially formulated a strategy for the European market, but he believes that the regulation poses a threat to stablecoins and also poses systemic risks to the entire banking system. MiCA requires that at least 60% of stablecoin reserves must be kept in EU bank accounts, a regulation that may increase systemic risks. Banks use a fractional reserve system, which makes them vulnerable to runs. Ardoino also mentioned the collapse of Silicon Valley Bank in 2023 as a warning, believing that this regulation may have an adverse impact on large-scale stablecoin issuers.
In fact, Tether has also been strengthening its compliance efforts. In addition to the previous PANewsarticle mentioning that Tether has begun to increase lobbying spending under the trend of strong regulation, Tether recently announced plans to double its staff size in the next year to enhance its strength in areas such as compliance. It is expected that the number of employees will reach approximately 200 by mid-2025.
More Stablecoin “Gold Diggers” Enter the Market
There is no shortage of competitors in the stablecoin market. Recently, a number of players have entered the stablecoin market, some from crypto-native protocols and some from traditional financial backgrounds.
ikB
Stablecoin project Gyroscope announced the launch of the yield version of the stablecoin Savings GYD (sGYD), with the goal of paying token holders an annualized return of 12%-15%, depending on market conditions.
RLUSD
Ripple's stablecoin RLUSD recently announced that it has begun beta testing its new stablecoin RLUSD on XRP Ledger (XRPL) and Ethereum mainnet, and plans to expand to other blockchains and decentralized finance (DeFi) protocols over time. RLUSD is pegged 1:1 to the US dollar and is 100% backed by US dollar deposits, short-term US government bonds and other cash equivalents. These reserve assets will be audited by a third-party accounting firm, and Ripple will issue certificates monthly.
ikB
DeFi protocol Gyroscope also announced this month the launch of a new yield version of its stablecoin, Savings GYD (or sGYD), which aims to pay token holders an annualized return of 12%-15%, depending on market conditions. Income comes from token-backed assets, which are stored in segregated vaults for various DeFi investment strategies.
HKD
The Hong Kong dollar stablecoin HKDR is launched by Circle Coin Technology and will be integrated with the Chainlink Cross-Chain Interoperability Protocol (CCIP) to enable HKDR to be safely and reliably transferred across chains and reach more different users. Circle Coin Technology will use Chainlink's Proof of Reserves (PoR) function to provide reliable on-chain verification for HKDR reserves. Circle Coin Technology's subsidiary Circle Coin Innovation Technology Co., Ltd. has been included in the Hong Kong Monetary Authority (HKMA)'s Stablecoin Issuer Sandbox Program and will conduct various use case tests for HKDR, such as digital asset transactions and cross-border trade payments.
JD Stablecoin
In July this year, JD.com announced that it will issue a cryptocurrency stablecoin pegged 1:1 to the Hong Kong dollar in Hong Kong. JD.com Stablecoin is a stablecoin based on a public chain and pegged 1:1 to the Hong Kong dollar (HKD). It will be issued on a public blockchain, and its reserves are composed of highly liquid and credible assets. These assets are safely stored in independent accounts of licensed financial institutions, and the integrity of the reserves is strictly verified through regular disclosures and audit reports. JD.com CoinChain Technology (Hong Kong) is a participant in the stablecoin issuer sandbox announced by the Hong Kong Monetary Authority.
XUSD
XUSD is a stablecoin pegged to the US dollar, launched by digital asset payment infrastructure StraitsX, which has obtained the MPI license issued by the Monetary Authority of Singapore to provide more comprehensive digital payment services.
USDH
DeFi protocol Hermetica also launched the Bitcoin-backed stablecoin USDH in July this year, which can always be exchanged for $1 worth of Bitcoin, providing users with a non-custodial option that aims to eliminate the need for Bitcoin users to rely on centralized exchanges or fiat-backed stablecoins on alternative chains.
USBD
USBD is a Bitcoin-backed stablecoin launched by stablecoin developer Bima Labs. It can be minted by providing Bitcoin liquidity pledge and re-pledge tokens as collateral. It will accept collateral from multiple blockchains, including Bitcoin, Bitcoin expansion network, Ethereum virtual machine (EVM) compatible network and Solana. Bima Labs announced in July this year that it had completed a $2.25 million seed round led by Portal Ventures.
In addition, French financial institution SG Forge, stablecoin company StablR, European fund giant DWS, and crypto market maker DWF are all about to or have already obtained the qualifications to issue stablecoins. With regulatory competition and the accelerated entry of new players, the stablecoin landscape may usher in more changes.
