Tether USDT hits record high – precious metals to thank, or tanking Circle stablecoin?

Key Takeaways:

• Tether market cap at a record high of $82.8 billion.
• Enlarging gold reserves might be a contributing factor, expert says.
• USDC and other large stablecoins had a troubled Q1, spurring USDT growth.

YEREVAN (CoinChapter.com) – Largest stablecoin and third largest digital asset Tether (USDT), grew 25% year-to-date and reached an all-time high market cap of $82.8 billion on May 14, beating the former record-high $82.4 billion in April 2022 by $400 million. 

Gold a substantial part of Tether reserves?

According to cryptocurrency veteran Gabor Gurbacs, the founder of the PointsVille service and long-term director of digital assets strategy at VanEck, Tether’s success could be attributed to its focus on precious metals. The expert called Tether a “precious metal powerhouse” as the company allegedly stores nearly $3.4 billion of its reserves in gold.

Tether Gold-assets are around $3.4 Billion. XAUT AUM is around $500mm. Tether is now a precious metals powerhouse.

Don't underestimate the Tether team. High integrity and hard working team that supports Bitcoin, commodity technologies and financial inclusion. pic.twitter.com/0JPvNUk6n5

— Gabor Gurbacs (@gaborgurbacs) May 12, 2023

Despite the “powerhouse” assessment, as of Tether’s latest transparency report, the noted amount of gold accounts for just over 4% of Tether’s collective reserves.

Gurbacs also warned against “underestimating the Tether team” and called them a “hard-working” community that supports “Bitcoin, commodity technologies, and financial inclusion.”

Tether usage on the rise

Crypto investors generally regard stablecoins as a mediator between cryptocurrencies and the fiat economy. Thus, they are often used to avoid the turbulence associated with digital assets while staying in the sector.

According to crypto tracker CoinMarketCap, the number of USDT holders rose to 4.4 million on May 14, albeit accompanied by a rise in centralization – the top 100 addresses hold over 38% of the USDT supply.

Also read: Will Binance win the stablecoin battle if USDC collapses? Let’s see

Tron’s Role in USDT Dominance

Markus Thielen, head of research and strategy at crypto services provider Matrixport, believes the rise in Tether market cap could be attributed to “aggressive minting and issuance” on Tron. DeFi tracking platform DeFiLlama backs the outlook and shows Tron-issued Tether at a 51.9% dominance. Notably, Ethereum-issued Tether stood at 39.6%.

USDT rose on the back of tanking Circle stablecoin USDC

The third-largest USDT batch is on Binance Smart Chain (3.9%), which has an obvious conflict of interest, as it generally relies on its infamous stablecoin Binance USD (BUSD), issued by Paxos.

However, as the Securities and Exchange Commission (SEC) filed a lawsuit against Paxos, BUSD ate the cost, with billions in outflows. Binance then developed an alternative stablecoin – True USD (TUSD), now the fifth largest stablecoin by market cap.

Moreover, the second-largest stablecoin, Circle’s USDC, suffered a de-pegging incident, threatening lasting consequences and shaking investors’ trust. As a result, the stablecoin lost altitude parallel to Tether’s surge, confirming its erratic inverse correlation with USDT. While the latter rallied 25% since January 1, USDC lost 33% of its market cap.

Matrixport researcher also noted that some USDC holders likely diversified into Tether and Bitcoin. In a note to investors, Thielen wrote:

When news about unlimited support for bank deposits made the rounds, bitcoin prices exploded […] within a matter of days. But it would appear that holders of USDC either converted their Circle stablecoin into Tether’s USDT or that they simply sold $10 billion of USDC and bought bitcoin instead.

said the researcher.

Also read: What happens to crypto if Tether (USDT) collapses?

Tether usage is dependent on the macroeconomic climate and the crypto sector as a whole. However, considering the troubled competitors and the heightened demand for stablecoins, the Tether market cap could climb even higher.