Why does USDT grow faster than Bitcoin and Ethereum?

LongHash Blockchain Information (ID: Kyle Torpey)

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%. Among the top five digital currencies, Tether has the fastest market value growth. It has nearly tripled since the beginning of the year, becoming the third largest cryptocurrency in the world with a valuation of about 16 billion US dollars .

Tether has done a "steady" business in a volatile market.

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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 from day one. According to Chainalysis data, digital currency trading is the main demand for USDT. In the past six months, 97.9% of newly minted USDT was directly transferred from Tether's official account to the exchange.

Compared with different types of trading platforms, the recent USDT inflow of funds into derivatives trading platforms has the highest growth rate, with an average growth rate of 248% in the past 7 days compared to 180 days.

In 2020, with the intervention 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, such as the "reverse 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.

Due to the many uncertainties brought by 2020, according to Google Trends data, the global market's attention to Tether has tripled in the past year, and the demand for offshore finance has risen rapidly.

From the data on the liquidity held by USDT, it can be seen that the use of the stablecoin Tether is classified as illiquid, accounting for nearly 5 billion U.S. dollars, and it also accounts for the majority. In addition to being used for market transactions, it is also considered by the market to be the target of value storage.

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Multi-chain issuance reduces costs

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

The figure above shows that after the Federal Reserve expanded its credit scale, the price of Bitcoin also rose significantly. From the perspective of the graphic trend, it is almost in line with the direction of gold and US stocks.

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.

At present, more and more blockchains and protocols are supporting USDT. In addition to Ethereum and Tron, which are the public chains carrying the largest Tether, there are also many protocols that are also issuing stable coins, such as BCH's Simple Ledger (SLP), The stablecoin ecology is becoming more and more diversified to meet the needs of different segments.

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