At Block0, we are fascinated by the stable coin narrative that has emerged this year. Naturally, we have spent time digging into the data behind Tether — the most popular stable coin — and in light of recent events, now seems like a great time to share our findings.

This piece will draw on historical market data to show the phenomenal growth that Tether has seen over the past year, and comment on recent events which demonstrate that we have reached peak Tether.

TL;DR:

During Q3 2018, Tether (USDT) dominated fiat currency (USD, EUR, KRW, JPY, and GBP) trading across the top 10 crypto markets, commanding 45%+ of trading volumes. Furthermore, Tether represented 98% of the stable coin market.

Currently, there are 159 different cryptocurrencies trading against USDT on 400 markets. Tether achieved this growth in the past year through partnerships with centralized exchanges. Now, centralized exchanges are turning their backs on Tether: Binance has added Tether competitors Paxos Standard and TrueUSD; Okex has announced that they will be adding Gemini USD, Paxos Standard, USD Coin, and TrueUSD.

Tether’s major question — “Is Tether telling the truth when it says that each of its digital coins is backed by one U.S. dollar? — has yet to be answered. The market has finally responded to the absence of an answer, and Tether’s USD peg was broken.

As the market demands a Tether alternative, TrueUSD and Paxos Standard have been trading at a premium for the last week.

Tether’s market volume takeover

Within the top ten cryptocurrencies, since Q4 2017, Tether (USDT) has grown from commanding less than 5% of market volume across fiat currency pairs (USD, EUR, KRW, JPY, and GBP) to almost 50% of volume in Q3 2018.

The irresistible rise of Tether in 2018

Q3 2018, USDT was the dominant trading pair in the top 10 cryptocurrency markets, with 48% of trading volumes in Q3. In the markets we studied, the total trading volume was $247bn during Q3. In comparison, total trading volumes for Q1 and Q2 2018 were $494bn and $311bn respectively, with a USDT share of 21% and 35% of total trading volume.

Tether trading dominated the market in Q3

Tether’s Route to Market

With at least 159 different cryptocurrencies trading against USDT on 400 markets, Tether is the most adopted cryptocurrency in the stable coin family.

The route to adoption for USDT has been through direct deals between USDT’s issuer and centralised cryptocurrency exchanges such as Binance, Okex, Huobi. Tether’s dominance has been explained as a direct response to growing investor demand for stable assets to trade into.

As USDT was the first stable asset of its kind available, its explosive growth was down to first-mover advantage. This came from its addition to Bitfinex and the lack of a better alternative in the market. Traders used Tether as they were forced to.

Tether’s market cap and issuance issues

Over the last year, the market cap of USDT has increased from $450m in October 2017 to $2.4bn in October 2018. This kind of growth is difficult to quantify due to a lack of transparency in the processes behind Tether’s issuance.

Many people believe Tether is used for wash trading and trans mining. Accordingly, we eliminated exchanges that have grown and encourage trans mining on their platforms from our volume analysis. Regarding USDT trading volume, we strongly think that the main reason for this increase is the shift from fiat to tokenized fiats, as our data shows.

In regard to Tether’s issuance, one question still circulates: “Is Tether telling the truth when it says that each of its digital coins is backed by one U.S. dollar?”. In lieu of a clear answer, the market has lost faith in Tether and the USD peg has been broken.

The market demands a new stable coin

Over the past two weeks, we have seen market demand for a new stable coin increase, with TrueUSD and PAX trading with a premium across a number of exchanges. The graph below shows the premium which TrueUSD trades at over Tether, although the situation is stabilising the market is still favouring TrueUSD.

TUSDUSDT at October 16, 2018 18:17 CEST

Conclusion

Tether’s incredible growth over the past year was due to demand in the market for a stable coin, which Tether filled as the first-mover in the space. Until recently, questions around the legitimacy of Tether and Bitfinex had largely been ignored by the market, with Tether holding a monopoly of 98% of stable coin trading volume.

Over the last week, we have seen a loss in confidence in Tether, and the market has reacted with Tether breaking its peg to the USD. Other stable coins such as TrueUSD and Paxos Standard are now trading at a premium, and exchanges are racing to offer alternatives to Tether. This drop in confidence in the market leads us to believe that we have hit peak Tether, and we will not be surprised to see another stable coin challenge Tether in the coming months.

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Methodology: We analysed the trading data of major exchanges over the last year using Cryptocompare’s API to pull aggregated data from the ten largest crypto pairs. We excluded exchanges ABCC, Bitforex, CoinEx, Coinbene, Coinsuper, EXX, Fcoin, ZBG from our dataset. Additionally, we excluded volumes from several geographies that reported unrealistic historical data. To convert all trading volumes in US dollars, we used an average FX rate for all trading pairs.

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