What are Stablecoins Actually Used For?

Part II: Tether's On-Chain Activity

View Tether's On-Chain Activity

Legend: The visual above is a recording taken from our data cooperative. Each bubble represents part of USDT’s active supply on the Ethereum blockchain. This is defined as having been transferred within the last 30 days.

Earlier this year Tether and Bitfinex’s CTO argued that USDT could inject much-needed liquidity and stability into the emerging decentralized finance (DeFi) space. While Tether currently has a very small base in DeFi, it will be interesting to see how that develops. 

By monitoring asset flows we can gain better insight into how Tether is being created, destroyed, and used. Here’s what we found: 

Bitfinex is constantly printing more Tether, and none has ever been burned.

Notice how all new supply minted (dark grey in the “Mint” category) goes through Bitfinex (green) before being created. That’s because the cryptocurrency exchange shares the same parent company (iFinex) as Tether, and in a sense Bitfinex controls the keys to the Tether token printer.

In fact, on April 25th 2019, the NY Attorney’s General’s office found that Bitfinex had used funds (collateral) from Tether to cover up $850 million in (alleged) losses.

We can also see that no tokens ever go to the “burn” category, which means that throughout the course of April no USDT supply was destroyed. Looking at the full history of USDT on Ethereum, we found that no tokens have ever been burned.

It’s no wonder then that Tether was in the news this month due to its supply reaching new highs. 

Most of Tether is used on centralized exchanges for arbitrage.

It’s pretty clear that most of Tether is used on centralized exchanges, namely Huobi (in light grey), Binance (in yellow) and Bitfinex (in green). The constant movement back and forth between users (in red) and these exchanges reflects the fact that Tether is mostly used for arbitrage. Users can easily make a profit by buying from one exchange and selling on another for a higher price. 

Users are paying higher fees to transfer Tether faster. 

What’s interesting to note is the fact that USDT is not sent directly from one exchange to another. Instead, the asset goes through a user wallet before going to a different exchange. 

This is probably because arbitrage traders want more control over the price they pay for transactions, or “gas”. If they send their Tether directly from an exchange, that exchange will process the transaction from its own wallet, at market price. For a transaction to get processed first, users can instead use their own wallet to pay a higher transaction fee. The above money flows suggest that most USDT users are opting for that faster option. 

About Tether (USDT): Launched in 2014 and originally built on top of the Bitcoin blockchain, each unit of Tether (in theory) represents a dollar held in a bank. The stablecoin has had a rocky history with allegations of “printing” unbacked tokens, fraud, and criminal conspiracy. Despite that, Tether has grown into the most long-standing and widely used stablecoin in circulation, 10x larger than its next biggest competitor (USDC).