Trading with Tether’s USDT stablecoin has reportedly fallen to multi-year lows, a fact that calls into question its rise to near all-time highs in market capitalization. This information, according to crypto market research firm Kaiko, seems inordinate since the primary use of stablecoins, such as USDT, is for trading. In fact, dollar-pegged stablecoins now have a combined market capitalization of $129 billion and serve as the backbone of the digital asset ecosystem.
Interestingly, while the USDT market cap has surged to $83.4 billion, primarily driven by bank failures and a U.S. regulatory crackdown on rival stablecoins such as Circle’s USDC and Paxos’ BUSD, its trading volume has experienced a sharp decline. This trend can be attributed to lackluster crypto trading during a bear market and Binance reintroducing trading fees for USDT asset pairs. Over the past weekend, USDT’s daily trading volume fell below $10 billion for the first time since March 2019, according to CoinGecko data.
These circumstances lead to further suspicion about the actual usage of the stablecoin on both centralized and decentralized exchanges, as Kaiko argues that the increase seems inordinate. The crypto industry has long scrutinized Tether about the assets backing USDT’s value and the lack of audits, bringing these concerns back to the surface.
Kaiko’s research director, Clara Medalie, asserts that a decline in market capitalization would be anticipated alongside falling trading volumes, assuming that trading remains the dominant use case for stablecoins. This is evident in the shrinking market caps of USDC and BUSD. However, this trend does not appear to be the case for Tether.
Possible explanations for USDT’s growth against the grain include a shift to offshore exchanges from regulated ones due to increased U.S. regulatory pressure on the traditional financial system. Medalie suggests that traders may be turning to Tether as they can no longer use U.S. dollars. Another possibility involves the relationship between the Tron blockchain, Tether, and Binance. With the majority of USDT tokens issued on the Tron network founded by Justin Sun and Binance owning the largest USDT addresses on Tron, market makers may be opting to use the network due to lower fees and supplying liquidity to Binance with USDT.
As of now, Tether has not yet responded to CoinDesk’s request for comment, but these recent developments and questions surrounding the USDT stablecoin warrant further investigation and monitoring by the crypto community.