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Understanding Tether’s USDT Dominance
Stablecoins have become an essential part of the blockchain space, offering stability in a highly volatile market. While there are dozens of stablecoins with varying collateral available to investors today, Tether USDT remains the go-to choice for most cryptocurrency users.
In this article we explore the importance of stablecoins, focusing on USDT and its unconditional dominance.
The need for stability
Stablecoins are digital assets designed to maintain a stable value by being pegged to a reserve asset, such as the US dollar, the euro, or even commodities such as gold. They achieve this stability through various mechanisms, including fiat-collateralized, crypto-collateralized and algorithmic stablecoins. Fiat-backed stablecoins, the most common type, back each issued token with reserves of the corresponding fiat currency, ensuring the backing of a real-world asset.
While many cryptocurrency investors have some fun volatility, the level observed in most cryptocurrencies can make it difficult to use them for payments or exchanges. Stablecoins address this problem by offering a stable and reliable alternative, facilitating their use in a wide range of applications, including basic trading pairs, remittances, and decentralized finance (DeFi).
This has resulted in substantial growth for stablecoins, which now boast a combined market capitalization of $161 billion. The chart below highlights this significant increase, which began in 2020.
To know more: How to Buy USDT in Three Easy Steps: A Beginner’s Guide
Stablecoin market capitalization. Source: InBlock
“While some of this growth is due to growing interest in cryptocurrencies, it is primarily driven by the growing importance of DeFi and the crucial role stablecoins play in DeFi primitives such as lending protocols and automated market makers (AMMs),” Vincent MaliepaardMarketing director of IntoTheBlock, told BeInCrypto.
USDT: the undisputed market leader
Despite stiff competition, Tether (USDT) has established itself as the most important stable currency in the cryptocurrency market. Launched in 2014, USDT is pegged to the US dollar, with each token supposedly backed by an equivalent amount of fiat currency held in reserve.
Data from InBlock shows that USDT, with a market capitalization of $111 billion, represents just over 70% of the total stablecoin market capitalization. In contrast, the second largest stablecoin, USDC, accounts for only 21%.
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Furthermore, there is no sign that this growth will slow down anytime soon. The number of USDT transactions has increased significantly since the beginning of the year and is approaching new highs.
Maliepaard points out that USDT’s dominance is attributed to several factors:
- Liquidity and accessibility: USDT boasts the highest trading volume among stablecoins and is available on most centralized exchanges and decentralized exchanges as a basic trading pair.
- DeFi Integration: Many DeFi protocols and platforms use USDT for transactions, lending and borrowing, allowing participation without exposure to price volatility.
- Cross-border transactions: USDT facilitates fast and cheap cross-border transactions, offering an efficient alternative to traditional ones banking systems.
- Stable store of value: In regions experiencing hyperinflation or economic instability, USDT offers a reliable store of value.
Comparison of USDT usage in different chains
While the USDT business is booming across all chains, not all are created equal. Data suggests that users use stablecoins differently across various networks. By examining their behavior on different chains, we can see how USDT is used in different ways. Whether trading, transferring value, or serving as a stable store of value, USDT’s versatility is evident.
TRON dominates USDT transactions
TRON is the leader in transaction volume with a dominant share of 78%. The following graph highlights its superiority over other blockchain networks.
This prominence is mainly due to TRON’s low transaction costs and high availability for deposits and withdrawals on major centralized exchanges, making it the preferred option for Tether cross-border USDT transactions. Surprisingly, the runner-up is not Ethereum but Polygon, which holds over 8% of total USDT transactions.
Transaction volume comparison
Examining the stablecoin’s volume market share reveals that Ethereum’s transaction volume far exceeds the number of transactions, highlighting its role in facilitating higher-value transfers. In contrast, chains like Polygon, Optimism and Avalanche they have a larger number of transactions but contribute less to the overall volume, indicating their use for smaller, more frequent transactions.
Detention vs. Transaction
The average USDT holding time on each chain further supports this finding. Data shows that Ethereum users typically hold USDT for 228 days, nearly three times longer than Optimism holders. TRON addresses also hold USDT for an extended period, on average 183 days.
These insights indicate that on Ethereum and TRON, USDT is primarily used to mitigate market volatility, serving as a stable store of value. On the contrary, on chains like Optimism e RefereeUSDT is often used for transactions, probably in DeFi-related applications where quick access to liquidity and transfer speed are crucial.
The future of USDT
Stablecoins, especially USDT, play a vital role in the blockchain industry by providing stability and enhancing the utility of digital assets. The recent growth of USDT on various blockchain networks consolidates its position in the cryptocurrency market. As the industry expands, the importance of stablecoins will likely increase, driven by their role in DeFi, trading and bridging the gap between traditional finance and blockchain.
Disclaimer
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