Prospects for Tether (USDT) in 2024
USDT has become one of the most popular digital assets as it has allowed investors to protect themselves from the high volatility of cryptocurrencies while still storing their funds non-custodial, i.e. without relying on banks and exchanges.
About Tether
Launched in 2015, Tether (USDT) is the crypto industry's first and largest capitalisation stablecoin. USDT is the 3rd most capitalized of all cryptocurrencies after BTC and ETH, and its capitalisation, according to CoinMarketCap in December 2023, exceeded $90.2 billion — more than Airbnb, Boston Scientific, BNP Paribas and CME Group. With a total stablecoin capitalization of ~$132 billion, Tether accounts for more than 68%.
USDT even surpassed Bitcoin in terms of trading volume for the first time in 2019, and it's been a long since Steiblcoin was the leader in this metric. As of 8 December, Tether's daily trading volume exceeded $52 billion.
What's in store for Tether in 2024?
The company said it plans to enter the mining industry in 2024. Tether has announced plans to invest in bitcoin mining in Uruguay, Paraguay and El Salvador. At each location, the company will launch renewable energy mining farms with a capacity of 40 to 70 MW each and has set a goal of reaching 1% of the total hash rate of the Bitcoin network. By the end of 2025, Tether plans to increase the full capacity of its miners to 450 MW.
Also, in 2023, Tether provided a $610 million line of credit to Frankfurt-based mining company Northern Data AG and acquired most of its shares.
Opening a new business line could bring additional benefits and risks to Tether. On the one hand, mining can increase the company's operating profits, increasing its reserves to protect USDT investors. On the other hand, the mining field faces uncertainty. It is highly dependent on metrics such as hash rate and network complexity, as well as the exchange rate of the Bitcoin cryptocurrency.
In addition, the company invests directly in the Bitcoin cryptocurrency: Tether currently owns 57,576 BTC worth ~$2.4bn with an average purchase price of $22,480. According to analysts at EmberCN, bitcoin investments have already generated over $1.1 billion in unrealised profits for Tether amid the rising BTC exchange rate. If the Bitcoin exchange rate rises, the company's financial performance will improve.
Investment company VanEck predicts that the capitalization of the stablecoin market will exceed $200bn in 2024. Undoubtedly, USDT will remain the leader in this segment and will only grow.
One of the negative factors regarding Tether's prospects was the legal proceedings related to a class action lawsuit against the company regarding USDT reserves that started in 2021. The company was accused of providing customers with false information about the reserves of the stablecoin. In November 2023, the case was closed in Tether's favour, but in the same month, the company received a subpoena from the regulator (SEC).
Rumours about possibly delisting stablecoin from significant cryptocurrency exchanges exacerbated the situation. On 15 November, the New York State Financial Services Authority published updated guidance on token listing, including a separate paragraph on Stablecoin. This guidance includes a "green list" of digital assets, which was missing USDT but had USDP from Paxos Gold and the recently released PYUSD stablecoin from PayPal. The document states that venture capital firms cannot self-certify stablecoins that are not on the green list.
However, in October 2023, The Wall Street Journal reported that Tether was increasingly featured in investigations related to money laundering, terrorist financing, and sanctions evasion. However, the results of these investigations are not yet available, and legal proceedings are not yet open. The WSJ often criticizes the company. For example, the publication noted that Tether has never been subject to independent reserve audits.
Drawbacks of USDT
The company completely controls the issue (issuance) and circulation of Tether. In other words, USDT is a centralized stablecoin whose smart contract is managed unilaterally by the company.
The company can, among other things, freeze and seize tokens from suspicious addresses via the smart contract. Tether fully follows Office of Foreign Assets Control (OFAC) sanctions requirements and blocks addresses upon request. According to analytics service Dune, Tether has frozen over $790 million USDT at 1,051 addresses. In the last year alone, the number of frozen addresses totalled more than 200.
On the one hand, this provides security in the DeFi environment, which is heavily affected by regular hacks and other malicious activities. In 2023 alone, there were 296 security incidents in the crypto industry, with a cumulative loss of ~$1.5bn. On the other hand, there are no guarantees that all address blocking is legitimate.
Conclusion
Despite centralisation, USDT is one of the most resilient stablecoins, having never lost parity to the US dollar in the last 3.5 years, while most other stablecoins have repeatedly lost their peg, some even permanently. The latter include the infamous UST, USDN and AUSD.
However, due to new litigation and recent actions by regulators, FUD is building up around Tether: it remains to be seen how all this will end and how it will affect the USDT stablecoin itself. The company currently has enough reserves to find a way out of almost any situation.