18 Jan 2021

A growing stablecoin market

Tether has been placed under mass-scrutiny lately while growing at a slower rate than its regulated competitors
Stablecoins are an opaque part of the crypto market, and lately, there have been loud allegations surrounding the legitimacy of Tether, the largest stablecoin in the market. In this report, we therefore highlight the role of stablecoins in the market, showing the stablecoin market trends since September. What’s the purpose of these stablecoins?Stablecoins are one of the key elements in the crypto market structure and mainly facilitate the settlement of trades on exchanges who for various reasons do not offer dollar pairs. They allow for far faster fiat rails than traditional bank wires, in turn reducing mispricing across exchanges. Stablecoin growth in 2020 – what’s driven it? As money flows into crypto, more stablecoins need to be created to maintain the peg given the increased demand. Exchanges and other market participants enable the creation of new stablecoins through USD bank wires to the stablecoin issuers. Tether sees a higher daily trading volume than BTC and ETH and is the leading stablecoin. This highlights the fact that demand for stablecoins increases as more users deploys funds to exchanges, seeking to trade crypto. Despite the market leading position of Tether, since Sept 1st the growth in the Tether supply (83%) have been outpaced by both USDC (243%) and BUSD (512%). However, keep in mind that the dollar value of all issued Tether is far larger than both USDC and BUSD. Both USDC and BUSD are issued by heavily regulated US companies (Circle and Paxos). The growth in these stablecoins prove that there has been a legitimately high demand for stablecoins. Redemption and creation of TetherLarge trading desks in crypto such as Alameda, Galaxy, OSL, 3 Arrows and B2C2 routinely use, create, and redeem Tether. They do so by USD bank wires with jurisdictions depending on the currency. An article alleging Tether for committing fraud has been spread like wildfire lately. While we encourage scepticism, we view this article as unnuanced and filled with misconceptions of the crypto market structure.
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