Behind Tether's crazy issuance: Is the cryptocurrency circle moving toward "dollarization"?
Editor's Note: This article comes fromCarbon chain value (ID: cc-value), Author: Jiang Xiaoyu, reproduced by Odaily with authorization.
Editor's Note: This article comes from
Carbon chain value (ID: cc-value)
Carbon chain value (ID: cc-value)
There used to be a view that: "The unlimited issuance of USDT is an excellent thing for Bitcoin. Because buying limited Bitcoin with unlimited USDT shows that the price of Bitcoin has a lot of room to rise." However, now We may need to look at this problem in a different way.
Since the "3.12" Bitcoin plunge, Tether has issued more than US$1.4 billion in USDT, and its total market value has also increased to US$6.2 billion, ranking fourth in the total market value of cryptocurrencies.
In front of USDT are Bitcoin (market cap: $116.39 billion), Ethereum ($14.7 billion) and XRP ($7.63 billion). If according to Tether’s increase in March, assuming that the market value of other cryptocurrencies remains unchanged, then USDT will overtake XRP in mid-April and rank among the top three in the market value of cryptocurrencies.
So, what exactly caused the crazy issuance of Tether? In addition to USDT, are there additional issuances of other stablecoins? What is the impact of Tether's additional issuance on the cryptocurrency (especially Bitcoin) market? This article attempts to discuss these issues.
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In fact, with the exception of Tether, the issuance of other stablecoins is skyrocketing.
According to the data from the third-party organization CoinMetrics, the issuance of USDT increased by 51.5% in March, that of USDC increased by 55.4%, that of PAX increased by 26.5%, and that of HUSD increased by 74.7%. The issuance of the top four stablecoins by market capitalization all saw a sharp increase in March.
Despite such a large-scale additional issuance of Tether, USDT still maintains a high premium to the US dollar. As of press time, Huobi and OK’s USDT fiat currency trading prices are both RMB 7.23, while the real-time exchange rate of USD to RMB is 7.07. The high premium shows that Tether's crazy issuance did not meet the demand for USDT in the market. ——In other words, there has been unprecedented growth in the demand for USD stablecoins on the market.
So, what exactly has caused such a substantial increase in demand for stablecoins?
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Three sources of demand: derivatives, hedging and cross-border circulation
First of all, the demand for USDT in the derivatives market is increasing day by day. In fact, Tether has been issuing additional USDT since the second half of 2019, but at a relatively slow rate. At that time, the market value of USDT was only more than 3 billion U.S. dollars, but now it has grown to 6.2 billion U.S. dollars.
Corresponding to this is the unprecedented prosperity of the cryptocurrency derivatives market, whose scale once exceeded that of the spot market. At the same time, major exchanges have developed trading products that use USDT as a margin to bet on the rise and fall of currency prices. After "9.4", the biggest use of USDT is to be used as a deposit channel for the cryptocurrency market. After 2019, another major use of USDT is to participate in derivatives market transactions. As more and more people join the cryptocurrency derivatives game, the demand for USDT will naturally increase.
We can see that on the day of the "3.12" bitcoin crash, USDT even sold at a high price of 7.6 yuan. Who would buy USDT at such a high price at such a time? This is partially due to the army of bargain hunters, but it is more due to the derivatives players who are eager to use USDT to make up the deposit. For the bargain hunters, buying USDT is just a borrowing channel to invest in Bitcoin; but for derivatives players, buying USDT means renewing their lives, so no matter how high the price is, they have to buy it.
One thing worth noting is that after the "3.12" plunge, although the bubble in the cryptocurrency derivatives market (most of which is the Bitcoin derivatives market) was punctured and the trading volume plummeted, it is getting more and more Most of the players present choose to do USDT contracts instead of Bitcoin contracts. The reason for this is that people who shorted Bitcoin in "3.12", even though they could earn more coins through transactions, the value of Bitcoin itself has also fallen. In order to earn stable profits, some players have switched from the Bitcoin standard to the legal currency standard, or the USDT standard. Their idea changed from earning more Bitcoin through contracts to earning more USDT.
The second reason for the surge in demand for stablecoins is due to the violent fluctuations in the Bitcoin market in March. In March, Bitcoin saw a rare market that fell by 40% in a few hours. The cryptocurrency market was like riding a roller coaster. It is an exaggeration to say that it is "bungee jumping." Faced with such violent fluctuations, many small and medium-sized players (even some giant whales) could not bear it psychologically, and they switched their cryptocurrencies to USDT for hedging. This directly drives the market demand for USDT.
However, safe-haven demand may not be the main reason driving USDT's high premium. This is because those players who really couldn’t stand the market fluctuations, after selling their cryptocurrencies into USDT, then sold USDT into RMB and chose to leave the market. They don't really need USDT, they just use USDT as a transfer tool. And those traders who can withstand the pressure have already used USDT to "buy the bottom".
The third reason for the surge in demand for USDT is that it has escaped from the cryptocurrency circle. One point of view is that due to capital controls and the appreciation of the U.S. dollar under the epidemic, USDT is not only needed in the cryptocurrency circle, but also outside the circle.
Yang Mindao, the founder of dFOrce, believes: "Under the influence of the new crown pneumonia epidemic, traditional cross-border circulation channels are closed, and demand overflows to USDT. The coinage of compliant stablecoins is basically rising, and it can be seen that the stablecoins supported by exchanges (such as Huobi’s HUSD and Binance’s BUSD) are actually grabbing USDT’s market share.”
If the epidemic passes, will the demand for USDT drop?
Mindao Yang is optimistic about stablecoins: "My judgment has always been that the U.S. dollar will take advantage of the super-circulation and borderless characteristics of stablecoins to further accelerate the dollarization process and replace the currencies of small countries and countries with capital controls. This year, the coinage of USD stablecoins will easily exceed 10 billion US dollars, and it is very possible that the total market value of stablecoins will exceed ETH.”
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Under zero interest rate, why is the minter willing to issue a large number of coins?
Prior to this, the stablecoin issuer only needs to exchange the stablecoin for US dollars, and then deposit the US dollars in the bank to earn interest. But if it enters the era of negative interest rates, how will the issuer of the dollar-anchored stablecoin operate its business model? If the issuance of stable currency becomes a loss-making business, what is the motivation for its issuance?
In this regard, Pan Chao, head of MakerDAO China, said: "First of all, the current negative interest rate policy refers to the negative interest rate for bank money stored in the central bank, and it is almost impossible for depositors to have negative interest rates, and it has never happened before. This is not possible at the moment. Secondly, the existence of banks eating interest margins is only part of the source of income for fiat currency stablecoin projects. For those project parties that anchor fiat currency at 1:1, their main motivation for issuing stablecoins is to use stablecoins. Support its own trading platform and ecology. For example, USDT is to Bitfinex, USDC is to Coinbase, and the issuance of stable currency is mainly to facilitate users to enter and exit and trade in their own ecological currency. Therefore, even if the interest income in the bank is gone, they still have motivation Constantly issuing stablecoins.”
Yang Mindao’s view is similar to that of Pan Chao: “Most of the centralized stablecoin issuers operate the stablecoin as a kind of traffic portal, so they don’t care much about short-term business models and realization. Stablecoin issuers actually have Various business models, deposit interest is only the most basic income; others such as lending, Tether, as the issuer of USDT, actually has a lending business, which can further increase the return on their balance sheet. 0 For centralized operators, the interest rate will indeed reduce the source of interest income, but it is also a process of elimination, and the final market will eliminate issuers that are not strong and cannot be realized from the mintage.”
In addition, there are also opinions that although there is no bank interest income, under the strong demand for USD stablecoins, project parties like Tether that are not fully mortgaged can still make money by collecting seigniorage.
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Stablecoins are replacing some of the functions of Bitcoin
We have seen that the market demand for stablecoins is rising sharply, and stablecoin project parties (mainly major exchanges) are also happy to provide stablecoins to the market. For the stable currency market, this is a good thing; however, for Bitcoin, there are deep worries buried under this matter.
Compared with Bitcoin, the USDT currency value is more stable, and it can be traded across borders 24 hours a day like Bitcoin. Once a war breaks out in a small country, those who need to transfer wealth can also exchange wealth into USDT for transfer. Before the large-scale application of USDT, these are the expected uses of Bitcoin.
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The second is the electronic cash function. Although Satoshi Nakamoto's original expectation for Bitcoin was "peer-to-peer electronic cash", Bitcoin is now moving more and more towards the road of "digital gold". There are many reasons for this, the most important of which is that the currency value of Bitcoin is unstable, with skyrocketing and plummeting, which naturally damages transactions. Compared to Bitcoin, USD stablecoins are more suitable as electronic cash.
Carbon Chain Value understands that users can use the stable currency HUSD to pay in mid west car rentals in Singapore, Pricerite in Hong Kong, Burj Khalifa in Dubai, and some merchants in Japan. For USDT, which has a wider trading volume, the role of electronic cash is more obvious in real life. For example, many companies in the cryptocurrency circle sign contracts and make payments in the form of USDT.
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