3. USDT is not far away from the second

USDT is a stable currency anchored to the U.S. dollar, which is exchanged 1:1 with the U.S. dollar. Tether issues it, and its market value ranks third on Coinmarketcap. On August 31, 2023, Ethereum has a market capitalization of $196.7 billion and USDT has a market capitalization of $85.4 billion, which is $111.3 billion short of Ethereum.I have introduced four major innovations in the field of cryptocurrency: Bitcoin peer-to-peer, USDT and stablecoins, Ethereum and smart contracts, and cross-chain. Will USDT surpass Ethereum? USDT is synonymous with stablecoins, more precisely synonymous with Tether. If you look at the ranking of the four major innovations summarized by the author, you will know that USDT is ranked ahead of Ethereum by the author. The implication is that USDT should surpass Ethereum in the year after the following year. Some people in the cryptocurrency circle may sneer after hearing this, so take a closer look at the analysis below. Note that relying solely on Bitcoin’s four-year halving, without innovations, is not enough to keep the currency circle eat full.

In the currency circle, the first one to leave the circle is USDT

Everyone in the currency circle believes that stablecoins are the standard currency of the currency circle. What is a standard currency? There is a simple explanation: the standard currency is the ruler of commodity pricing, marking the price of commodities. The overall market value of stablecoins has long surpassed Ethereum, but USDT has not yet. USDT is the first stablecoin with a first-mover advantage, but it has no golden spoon like Ethereum. On March 10 this year, the Silicon Valley Bank of the United States exploded. The stable currency, USDC, issued by the Americans, deposited 3 billion U.S. dollars in cash in the Silicon Valley Bank. The market cast aside such unbearable risk control. The market value has fallen from 43 billion U.S. dollars to 26.1 billion today. At the same time, USDT has risen from a low of 60 billion to 85.4 billion, less than 500 million U.S. dollars from the historical high. It stands to reason that the lost market value of stablecoins has recovered about half, and the market value of the currency circle should not be so bleak. The long-term trend charts of Bitcoin and Ethereum are slightly stronger than USDC, but USDT is close to a new high and has stepped out of an independent market. Obviously, this phenomenon cannot be explained only by the fact that USDT is the standard currency of the coin circle because it is out of sync with the general trend of the coin circle.

What is the reason? Looking at the USDT website, we found that the circulation of the stablecoin USDT(TUSD) issued by Justin Sun of Tron is 42.8 billion U.S. dollars, and the circulation of genuine USDT on Ethereum is 39 billion U.S. dollars. There are 28.75 million TUSD holders and 4.548 million Ethereum USDT holders. There are 6.3 times more holders of TUSD than USDT on Ethereum. The number of people in Ethereum is the number of independent addresses, and many people’s USDT is in the account of the encrypted exchange. In other words, many people who hold TUSD are not speculators; that is to say, they are not in the coin circle. The graph of Tron speaks for itself. The trend is obviously better than Bitcoin and Ethereum, outperforming the general trend, entering the top ten, with a market value of 6 billion U.S. dollars.

Justin Sun of Tron is also called Sun Brother, a well-known big talker in the currency circle, and everyone does not take his words seriously. When he talked about the stablecoin TUSD, he boldly stated: “The target of 60 billion U.S. dollars is too conservative. Let us set our sights on 100 billion U.S. dollars.” Looking at USDT’s report at the end of June, we know that TUSD has not completed more than half of the tasks in the past half of the time. However, Brother Sun’s words must be taken seriously. He is at the forefront of the market and understands marketing and competition. The biggest feature of TUSD is that there are almost no fees. It is a huge competitive advantage. In addition, it has the endorsement of USDT (Tether). What’s to stop outsiders who don’t know about the darker side of Justin Sun’s world from using TUSD? Pain point also pain point, what did Brother Sun see? Why do you hit it off so well with USDT? Let’s see what USDT has to say.

The instability of the world economy makes stablecoins useful

The following is an excerpt of the views of Tether’s article. They saw the practical value of stablecoins when they wrote the white paper. The coin circle is just the starting point for them to test the water, and the blockchain becomes the infrastructure of USDT.

Many traditional financial experts do not understand why the market has such a large demand for stablecoins. Tether concluded that the large demand has nothing to do with the coin circle. When we only look at the coin circle, their view is that when the following situations occur, there will be greater demand for stablecoins:

1. When the global economy continues to need more dollars;

2. When more countries continue to try to block capital flows;

3. As businesses continue to realize the benefits of using stablecoins to manage their operations and balance sheets;

4. When the spillover effect of the U.S. currency adjustment makes the currencies of small countries continue to fluctuate;

5. When it is necessary to facilitate cross-border transfers and remittances and provide banking services for the unbanked;

6. When bank regulations become stricter, resulting in the loss of customers.

The above trends will drive a significant expansion of stablecoin supply over the next decade. These factors have little to do with the hype style of the coin circle. That is an actual commercial application. The market value of the entire currency circle is less than 1.5 trillion U.S. dollars, and there are ups and downs. The total market value of the currency trading market has reached more than 300 trillion U.S. dollars, and the demand is very stable. Their goal is that “Tether is committed to maintaining its leadership in stablecoin innovation and usage.”

Obviously, Brother Sun transfers almost no fees, which impresses Tether that hopes to be “leading in usage.” We noticed that the issuer of TUSD is TRON, which is different from the issuer of Tethe on the Ethereum chain. Tether is the regulator and exchange party of funds on the TRON chain. USDT’s guaranteed loan is US$5.3 billion, and the counterparty is not listed in detail, while TRON’s market value is US$6 billion, so it can obtain this loan. In fact, this is a credit loan, and it does not even need to give Tron Money, only a balance in the account. That also explains why Brother Sun spent $1 billion to acquire crypto exchange Huobi; Brother Sun is too awesome. Outsiders see Brother Sun as a big fool, but who knows his plans for TUSD. The above views are purely speculation and have no actual evidence.

Just showed her sharp corners

Trading is an easy business to think about; stablecoins are not. Tether is part of Hong Kong-based iFinex, which also owns the Bitfinex cryptocurrency exchange. The exchange opened in 2012, and they found a bigger business. In 2014, they launched the first stablecoin on the Bitcoin chain. Users at this stage experiment with new technologies, while the total supply and market cap of USDT is less than $1 million. In 2016, the market value of USDT broke through $1 million for the first time and broke through the $10 million mark for the first time at the end of the year. It is the beginning of rapid growth over the next few years. At this time, they are mainly for cryptocurrency customers, and they solve two pain points:

1. Provide digital dollars for exchanges without fiat currency channels.

2. Provide users with blockchain online value preservation tools.

There was a big bull market in 2017, and by the end of 2017, the market value of USDT had exceeded 1 billion U.S. dollars. After another five and a half years, the market value of USDT has risen to 85.4 billion U.S. dollars.

Tether is not transparent enough; some people have always suspected its credit, but it is a blessing in disguise. In May 2022, the South Korean algorithmic stablecoin Luna/UST exploded. In just 20 days, Luna’s market value of more than 40 billion U.S. dollars was wiped out. Luna/UST is the third largest stablecoin, causing panic about stablecoins. Tether effortlessly redeemed more than $20 billion in about 20 days. In the history of finance, no bank has been able to do this without going bankrupt. In March 2023, USDC, the second largest stablecoin with a golden spoon in it, had an accident again, causing USDC to unanchor, and the market was eager to exchange USDT for hedging. USDT did not fall but hit a high point, reaching 1.05 US dollars.

Tether’s profit is very stable, and its profit depends on the circulation and the interest rate difference of the Federal Reserve. Tether’s net profit in the first quarter of 2023 was US$1.48 billion, more than double that in the fourth quarter of 2022. According to its growth and profit estimates, Giving Thther a price-earnings ratio of 30 times is already US$180 billion, which is close to the market value of Ethereum. Of course, this valuation is not the valuation of USDT. Nevertheless, the future of USDT is limitless.

The coin circle says that Ethereum will surpass Bitcoin. The author thinks it is challenging. If Bitcoin does not progress in commercial applications, stablecoins will beat it sooner or later. Because the stablecoin market is too big, the competition in the stablecoin market is very fierce. We saw the entry of traditional exchange Robinhood and payment company PayPal, whose customers, marketing methods, and product ease of use are all above the level of current players in cryptocurrency. Big players will continue to come in. Cryptocurrency has many advanced ideas, but some original ideas will become obsolete. There will be a new way of playing from the market, concept, and technology to the method. People and projects who stick to the perspective and style of blockchain will inevitably die. Like China’s reform and opening up, the earliest people who entered the sea were all eliminated. USDT has a first-mover advantage. It is the first successful project to move towards large-scale commercial applications with the help of encryption technology using traditional methods.

several unanswered questions

1. USDT is centralized. Accordingly, Tether is not optimistic about decentralized stablecoins. “While the appeal of decentralized stablecoins is high, history has shown that decentralized stablecoins are designed to either lead to centralization (ultimately backed by collateralized stablecoins) or outright failure ( Algorithm stablecoins crashes).” Among these two sentences, the first sentence refers to the stablecoin DAI, and eventually, DAI added the stable currency USDC to its currency mortgage liquidity pool; the second sentence refers to Luna. The problem of DAI does exist, but DAI does not mean that the decentralized stablecoin is behind. From the perspective of Bitcoin theory, decentralized stablecoins have higher transparency, and solving the problems that DAI has not solved is the right way.

USDT has not done well regarding stability, and there will be a 5% premium volatility in 2023. They explain that the insufficient USDT reserves of the exchange cause this. If it is centralized, it should be regulated by itself. I initially thought they were involved in price adjustments; I was wrong in the past and can’t find any trace of them making adjustments on their website. Their description is to exchange for 1 dollar no matter what the price is. That can only ensure that the value center is 1 U.S. dollar and cannot be considered an adjustment behavior. The Hong Kong Monetary Authority’s approach is not to intervene when the ratio of the Hong Kong dollar to the U.S. dollar fluctuates within the range of 7.75-7.85:1 but will intervene when the ratio exceeds 7.75-7.85:1, so there will be no 5% premium. That is doing better than USDT.

2. The second problem is not a USDT problem. They said: “As of March 2023, Tether has blocked 846 addresses in the Ethereum network, and more than 449 million USDT has been frozen.” 3. The critical issue is the legal environment.

The first regulatory problem faced is that some responsible officials do not know how to pretend to understand. For example, how can BUSD be a security? It has a complete concept of money; it has the characteristics of a stored value, a medium of exchange, and a ruler. BUSD is a currency, not a security, and securities do not have the characteristics of a ruler. Stocks are securities. Which stock can be used as a yardstick to price commodities? Impossible to think about with your toes. Such a stupid thing happened in the United States. If USDT encounters such a confused official, it will be tortured half to death if it is not tormented to death.

USDT is centralized, and without a checks and balances mechanism, the principle of “same business, same risks, same rules” should apply. USDT has matured after 8 years and requires at least the same supervision as listed companies. The market requires Tether to release a complete financial audit report from the “Big Four” accounting firm, not the “guaranteed opinion on funds” stated by the issuer of the USDT stablecoin. Because USDT’s disclosure is not comprehensive, it cannot prevent people’s reasonable doubts. Just like my suspicion in this article, USDT has bubble lending. Although USDT is not a stock, it should not be too much to demand the transparency of a stock. As a currency, the requirements should be higher.

Cryptocurrency is currency, and its greatest use is as a medium of exchange for goods. That is the actual use of currency. Hype only applies to the stage when a currency discovers value. Constantly switching hands back and forth in one’s own circle, if it were not for the big brother Bitcoin, cryptocurrency would have died long ago. Stablecoins are silent; even the person in charge does not show up, and big money is made quietly because it conforms to the proper use of money.

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