Tether Still Dominates Stablecoin Sector, Despite Doubts

  • Tether (USDT) holds on to a massively dominant market share as new competitors struggle for traction
  • Exchange-driven efforts to increase choice may be beginning to influence traders
  • USDT has a market capitalisation almost 10x that of its nearest competitor

Despite a six month period punctuated by bad publicity, worries regarding its stability, and increasing competition, new research by CryptoCompare has revealed that Tether (USDT) has maintained an almost complete grip on the Bitcoin-to-Stablecoin markets. 

According to figures published as part of CryptoCompare’s monthly Exchange Review for December, Tether (USDT) has continued to take the lion’s share of overall BTC trading volumes. According to the report, published today, its pairs accounted for around 65% of all bitcoin-related volume during the last month of 2018. In that same period, its new competitors - Gemini’s GUSD, Circle’s USD Coin (USDC) and Paxos Standard PAX - only managed to take a chip of around 2% away from Tether's stablecoin dominance.

Tether's stablecoin dominance in Bitcoin pairings never fell below 97%

At the start of October 2018, BTC-Stablecoin pairs were dominated at almost 100% by Tether. Since mid-November, however, Circle’s new stable coin offering, USDC, has managed to carve out a 1%-ish niche for itself. New York-regulated dollar-linked coin, Paxos Standard (PAX), then moved into market during December to take around 2% of the pie. At no point, however, has USDT’s dominance of the stablecoin scene amounted to less than 97% across the wide range of exchanges covered by the cryptocurrency data site’s aggregation.  

That’s despite the world's biggest exchange Binance - and USDT’s spiritual home, Bitfinex, a service with which it shares senior management - both making concerted efforts to loosen their ties to Tether during that time. Binance moved to widen its range of Stablecoins in the run up to the end of 2018, by bringing in its combined USDS market tab, allowing users to see how crypto-assets are priced against a tranche of four different stablecoins. In early December, to the surprise of many observers, Bitfinex opened up new pairs with five new options - all those previously mentioned plus the Ethereum-backed Dai (DAI) and longer-standing Tether alternative, True USD (TUSD) - having previously been synonymous with USDT. 

Even more eye-catchingly,  Bitfinex has since activated margin trading on the USDT/USD pair. That move, which has been interpreted as a slight against Tether’s stability, essentially allowed traders to hedge against the effects of the so-called ‘Tether Premium’. That’s the name given to the de facto surcharge the market places on buying Bitcoin and other cryptocurrencies using USDT as opposed to ‘real’ dollars. Currently, the premium, is running at around 1.47%, meaning USDT pairs are pricing bitcoin approximately $52 dollars higher than USD markets. 

At the height of doubts about Tether’s future earlier in the year, fuelled by long-term banking issues and doubts about its reserves, that Premium was in excess of $1,000 at points of high-volatility

Much of the increase in interest in PAX appears to have come since Binance opened up its pairings, allowing PAX to be traded against USDT and other crypto-assets since early October. That was a move that was applauded by its CEO Changpeng Zhao in a tweet that simultaneously side-eyed Tether. The PAX USDT pairing saw a 70% rise in volume through December, according to CryptoCompare’s figures, with the biggest day of trading falling on December 20th. 

While PAX appears to be the most likely of the new batch to gain ground on USDT, it still has a long way to go. At the time of writing, it hold about 1.54% of the BTC trading volume - compared to the 64.39% USDT takes. While that hints that interest in it has grown further since the time frame of the CryptoCompare research, according to its last audited attestation, Paxos Standard had a circulation of $142.3 million as of December 31st.

By contrast, on the same date stablecoinindex.com shows Tether’s market cap to be nigh-on $1.92 billion. That gives just some idea of how big the gap is in terms of adoption and demand. The only other stablecoin currently residing in that cavernous gap between Paxos and Tether, is True USD; on that same day it’s market cap was 'just' $207 million, leaving it not much nearer. 

It would seem then, for now, that the brand recognition and established nature of Tether is enough to simultaneously drown out the voices of even the most vociferous of doubters, and hinder any wannabe looking to step into that market cap chasm. It would also seem that users of Bitfinex et al will continue to happily trade with it on exchanges where US dollar pairs are not an option while it's still a useful option. 

A sign of whether that is likely to change any time soon, will only come as we see whether the increased cross-stablecoin arbitrage options can bring a rise of interest in those competitors. Also, whether moves - like that of Binance - to unify stablecoin options brings the kind of liquidity to alternative pairings that traders obviously value with Tether. 

CZ Explains How Binance Dealt With Aftermath of $40 Million Theft

On Sunday (May 19), Changpeng Zhao (aka "CZ"), the Co-Founder and CEO of digital asset exchange Binance, told the crypto community what he and his team had been up to since the May 7 security breach that resulted in a theft of over 7,000 BTC from their Bitcoin hot wallet. 

What Happened on May 7?

According to CZ, the hackers involved in the security breach somehow managed to get control over a number of user accounts and structured large withdrawals from these accounts in such a way thay managed not to be detected/noticed by Binance's "pre-withdrawal risk management checks." Their "post-withdrawal risk monitoring system" only noticed something was wrong after the hackers had moved the stolen BTC off of the exchange via a single transaction, at which time it immediately suspended all "subsequent withdrawals." 

At first, the Binance team was not exactly sure what had happened, and so they decided that the safest course of action was for CZ to send out a tweet to say that the "withdrawal servers" were in "unscheduled maintenance mode" while the team was investigating the incident. 

Communication With the Crypto Community

Once the team had confirmed that the exchange had been hacked, information about the security incident was broadcast to the outside world via all of Binance's communication channels (such as Telegram, Twitter, and Medium). 

Since the team could not be sure which user accounts the hackers had access to, it was decided that it would be too risky to allow further withdrawals to be made until the team had the chance to make "significant changes" to the platform (to make it more secure). Binance's announcement on May 8 estimated that the exchange needed to do "a thorough security review" and estimated that this would take about "ONE WEEK," and that during this period, "deposits and withdrawals" would need to "REMAIN SUSPENDED."

By being fully transparent in their communication with Binance users, they were able to receive "tremendous support" from them.

CZ's Periscope AMA Session on May 8

Seeing CZ live put much of the Binance community "at ease." Unfortunately, because CZ had been up all night, he was not in an ideal mental state when he did the AMA. Just before the AMA, his team told him that a Bitcoin Core developer had suggested that it would be technically possible to roll back the single Bitcoin transaction carried out by the hackers by "hugely incentivizing the miners." CZ made the unfortunate mistake of mentioning this "reorg" idea (which he now realizes is a "taboo topic") during the AMA, for which he took a heavy beating (especially from hardcore Bitcoin maximalists) on Twitter (and elsewhere). 

CZ's Mental State Right After Being Told About the Bitcoin Theft

Although he was in a "F***, F***, F***” state" for around 10 seconds, a few moments later, he "began to come to terms with it," and a quick mental calculation told him that the theft of around 7000 BTC (equivalent of around $40 million at the time) could be fully covered by their SAFU fund. Meanwhile, his team had already gone into "War Mode", and their professionalism and support cheered up CZ. 

Support From the Crypto Community

Binance received support from many sources: people defending him and Binance on social media platforms, and helping to answer questions; the Binance Angels (who are all volunteers) "addressing questions" and "reassuring" users on "multiple communities"; analytics firms helping with the tracking of the stolen funds; exchanges and wallet services offering to help by blocking "any deposits associated with the hacker addresses"; and "numerous offers for help from law enforcement agencies around the world."

A Blessing in Disguise?

"Speaking with various team members, and as correctly analyzed by community members, such as Gautam Chhugani, this incident may actually be a good thing for us in the long run. Security is a never-ending practice. There are always more things to do in security, and we have implemented many of them in this last week and will continue to implement more in the future. Given this incident, Binance has actually become far more secure than before, not just in the affected areas, but as a whole."