Surge of USDT Issuance

KEY TAKEAWAY
  • Since March 2020, Tether has issued more than 4 billion USDT, which has doubled the outstanding amount in just less than 3 months.
  • The USDT premium and arbitrage activities may be the driving force of the surge in USDT issuance.

As of end 2018, the total market cap of stable coins was slightly under USD 3 billion. As of end 2019, it almost doubled and surged to USD 6 billion. Since March, stable coin issuance has continued to soar and is now sitting at USD 10.8 billion. USDT alone represents over 9 billion. Please be reminded that the market cap of Bitcoin is only USD 176 billion as of May 19, assuming 100% of mined Bitcoin are still retraceable.

Source: DAppTotal

In addition to Omni-USDT, increasing number of USDT is issued on ERC20 and TRC20. As we previously commented in “Bitcoin Breaks Out & ETH Recovers Its Strength”, ERC20-USDT represents 63% of total USDT issuance and contributes to around 20% of gas consumption of Ethereum.

Source: DAppTotal

Back in April 2019, it was a rare occasion that USDT issuance reached a regional peak of 938 million. However, USDT new issuance has been over 1 billion per month for the last 3 consecutive months.

Source: DAppTotal & Bybit Insight

Putting aside the conspiracy of abusive issuance of under-collateralized USDT, we still want to find some potential reasons behind the phenomenon. The pace of USDT issuance looks to be coinciding with significant USDT premium relative to USD on Bitfinex. When the premium reaches to a higher level, more USDT will be issued. It may be driven by arbitragers taking advantage of the spread – to subscribe to USDT via Tether and to sell USDT into USD via Bitfinex.

Source: Bitfinex, TradingView

But why could USDT ever be traded at a premium in the first place? Some plausible explanations:

First of all, when Bitcoin surges or crashes, significant demand for USDT emerges. Investors without USD access would opt to buy or sell Bitcoin via USDT and people would seek USDT as a refuge in slump. This was what happened in 2Q2019 and the Black Thursday in March 2020.

Secondly, if Bitcoin buying interest from USD investors are stronger than USDT investors, i.e. BTCUSD price is higher than BTCUSDT price, it will lead to a USDT premium. Since the Black Thursday in March, we have observed differential views on BTC across the Pacific, where US investors are more bullish compared to Asian investors. Previously we have discussed about Grayscale’s growing position in Bitcoin and Ethereum, which is a proxy of US investors’ appetite. As USDT is more popular among Asian investors as a USD alternative, BTCUSD has been traded at premium to BTCUSDT.

Source: Grayscale