Stablecoin issuer Tether’s USDT has recently regained its all-time high market capitalization of $83.2 billion, a notable achievement given the overall shrinkage of the stablecoin market over the past 14 months. This milestone follows Tether’s recovery of the $18 billion it lost due to the implosion of blockchain project Terra in May 2022 and the subsequent market rout.
It is important to note that Tether’s success comes amid challenges faced by its closest competitors. For instance, the second-largest stablecoin, USDC, has been affected by the collapse of banking partner Silicon Valley Bank earlier in March, and its price stability remains uncertain. Additionally, Binance USD (BUSD) suffered a setback in February when New York state regulators forced Paxos to cease minting new tokens.
Despite these accomplishments, Tether has faced extensive criticism over the years pertaining to its reserve assets’ transparency, including possibly high-risk loans to undisclosed debtors. A legal case last year saw a U.S. judge order the firm to produce documents related to USDT’s backing, while a Wall Street Journal article reported historic usage of falsified documents to obtain bank accounts.
However, stablecoin holders have gravitated towards USDT during this tumultuous period due to its perceived safety from U.S. regulators and banks. This has driven the market share of USDT to its highest level in at least 22 months. Analyst Conor Ryder at digital asset research firm Kaiko highlighted that “peg stability is far more important for most stablecoin holders than issuer transparency.”
A Kaiko report last month raised questions regarding USDT’s “inordinate” market cap surge, as the increase appeared inconsistent with a significant drop in trading volumes to multi-year lows. This contrasts with other stablecoins, where market cap generally correlates with trading volumes.
Tether’s Chief Technology Officer, Paolo Ardoino, explained in an interview with The Block that USDT’s growing use for payments, particularly in the developing world, accounts for about 40% of all token activity, thus contributing to the difference.
In summary, Tether’s USDT has managed to regain its all-time high market capitalization despite the overall stablecoin market’s decline. Though the company has faced criticism regarding its transparency and reserve assets, the stablecoin’s growing use for payments and its perceived safety from regulatory scrutiny have contributed to this impressive resurgence.