Looking back at the predictions of major institutions for 2022, more focus is on the underlying public chain and the hot conversion of the application layer. A forgotten but at the same time important corner is the stablecoin.
The US dollar stablecoin is now the basis for the prosperity of the entire market, and the brilliance all comes from liquidity. The king among them is still USDT, which occupies more than half of the market share.
A strange phenomenon is that although voices questioning USDT are heard from time to time, for most people, USDT is inseparable.
Issuer Tether, which has long been questioned by insufficient and opaque collateral assets, is seen by some as a potential systemic risk in the blockchain industry. Tether actively responded to relevant rumors last year and disclosed more details of collateral for the first time. In the quarterly report on assets audited by Moore Cayman released in August, it can be seen that Tether uses commercial paper and deposit certificates as the main collateral, accounting for the vast majority of assets. Tether emphasizes that most of the bills are assets with good liquidity and good credit (above Moody’s A2), and publishes the quarterly report of assets also audited by Moore Cayman in December, and at the same time on the Tether website “daily update the reserve balance sheet” (https://wallet.tether.to/transparency), emphasizing that reserve assets are normally larger than the amount of stablecoins issued.
In addition to the Crypto field, the influence of USDT has gradually spread to the real world.
1 In February last year, USDT even became the legal tender of Myanmar’s shadow government, which to a considerable extent stabilised the US dollar’s status as a global hegemonic currency and strengthened its influence in global politics and online activities.
Connor Spelliscy, founder of the Blockchain Association, a US blockchain policy lobbying group, believes that the existence of stablecoins will not endanger the US dollar, but can expand the circulation of USD and create more demand for the use of USD. He further pointed out that even with the controversy over the largest stablecoin in the market, USDT, the United States has adopted excessively strict supervision on private stablecoins when the US Federal Reserve has no formal digital currency plan and countries are competing to issue central bank digital currencies (CBDCs). The attitude is quite unwise, and it may push the blockchain industry to overseas or other central bank digital currencies, making it more difficult to conduct moderate supervision of the US dollar stable currency.
The substantial influence of stablecoins such as USDT circulating in the global market has been closely embedded with the overall development of the crypto industry and the global political and economic landscape, and to a considerable extent is constraining the direction of the U.S. regulatory stablecoin policy.
In general, the author believes that the global stablecoin market will continue to grow in 2022, and compared with other stablecoins such as USDC, PAX, and TUSD, USDT has stronger liquidity and global influence. This trend is currently difficult to be recognized. break in.
The market logic of stablecoins
There are two main aspects of the existence value of stablecoins. One is to satisfy the liquidity of the cryptocurrency trading market, and to create a trading currency that circulates in the cryptocurrency market and has a stable consensus value. The USD stablecoins linked to the US dollar, especially USDT, are gradually emerging. It has become the mainstream consensus in the cryptocurrency trading market and has the largest market share in centralized trading; the other type is used as a substitute for the traditional US dollar. , USD stablecoins are regarded by more and more users as a substitute for USD, and USDT has obvious advantages. In cross-border trading activities, it has significantly better transaction speed and transaction fees than traditional finance for USD exchange.
To sum up, both the on-chain world and the off-chain world have stablecoins such as USDT.
The market characteristics and competitiveness of stablecoins are different from other cryptocurrencies that have both the nature of the currency market and the stock market. The operation of stablecoins is to deliberately exclude the price risk of the nature of the stock market, and only to have the nature of the money market to provide stable currency. Liquidity is the main purpose.
As Bengt Holmstrom, a Nobel Prize winner in economics, stated in “Understanding the role of debt in the financial system”, the money market and the stock market have completely different roles and market logics, and the stock market serves risk. Market participants are very sensitive to information, and will actively demand the openness and transparency of company information, evaluate stock value and risk with information, and reflect the current price consensus on the price discovery mechanism.
The money market is the opposite of the stock market. The money market is not designed to serve risk, but to serve liquidity. Under normal circumstances, the money market does not have a price discovery mechanism to deal with different information valuations. Money market participants care about the liquidity and versatility of the currency, and they already have a certain symmetric ignorance that the currency issuance is over-guaranteed. ) consensus, not sensitive to information.
Holmstrom believes that opacity is an inherent feature of the currency market. Excessive disclosure of information will destroy the original state of peer-to-peer ignorance, and make market participants who are not sensitive to information become information sensitive, because the news generates panic or frenzy and brings unnecessary The price discovery mechanism jeopardizes the original liquidity and price stability of the currency market.
Therefore, the standard for measuring the development of stablecoins is not to investigate whether there is sufficient asset collateral or to question transparency, but to look at liquidity. It is for this reason that the TerraUSD stable currency UST, without any real asset pledge, still relies on the Terra ecosystem and the liquidity brought by the connection to IBC, so that its issuance has soared to tens of billions of dollars.
Through the “Asset Audit Quarterly Report” and “Daily Update of Reserve Balance Sheet”, USDT emphasizes that the issuance of USDT has always been in a state of over-guarantee, and the guaranteed assets are reputable, which is enough to keep the market in a state of reciprocal ignorance ( symmetric ignorance) consensus state.
The current state of transparency of USDT may not harm liquidity, and may even help increase liquidity. It conforms to the inherent logic of the currency market, forms a peer-to-peer and effective currency market consensus, and accelerates the global expansion of USDT.
The liquidity advantage of USDT is mainly reflected in the number of transaction pairs on the chain, the depth of transactions, and the depth of OTC for fiat currencies, followed by the use of off-chain.
According to the trading volume data of Coinmarketcap on December 30, the single-day spot trading volume of USDT is 64.7 billion US dollars, accounting for 87.13% of all stablecoin trading volume of 74.3 billion US dollars, far exceeding the second-largest trading volume of BUSD with 4.3 billion US dollars, and USDC is third by volume with $3.6 billion.
Although the recent rapid rise of TerraUSD stablecoin has greatly increased its market value to $10 billion, its trading volume is only $129 million, and its trading volume/market value is only 1.3%, compared to 83% for USDT, which means that most USTs are It is not used in circulation, but is locked in DeFi mining pools. The positioning of UST and USDT is obviously different in currency attributes.
USDT still has the most trading pairs on centralized exchanges and is the preferred stable currency for conversion between encrypted assets. Secondly, for fiat currency deposits in local exchanges outside North America, most of them only provide USDT to local fiat currency trading pairs. The OTC market is also monopolized by USDT trading. The global liquidity and versatility are the most irreplaceable for USDT. Although other stable currency issuance mechanisms can better meet regulatory needs in North America, it is difficult to meet the liquidity needs of the global market, making it impossible to shake the status of USDT.
Most USDT-to-local fiat trading pairs not only have stable liquidity, but also, compared with the exchange rate of USD to local fiat currencies, USDT, which is easy to trade, is generally more valuable than USD. For example, MAX, the most popular fiat deposit place in Taiwan, only supports USDT for fiat currency exchange for stable currency, while the USDT/TWD exchange rate is 27.83, and the USD/TWD exchange rate is slightly lower at 27.64, forming a delicate state that USDT is more valuable than USD for a long time. There is also a similar premium between the Turkish fiat currency TRY and USDT on the Binance exchange, which further enhances the trading volume of USDT around the world.
In the cryptocurrency acceptance report released by Chainalysis, the top countries, including Vietnam, India, Pakistan, and Ukraine, all rely on USDT as the unit for OTC market deposits, and India and Ukraine have local centralization. The fiat-to-stable currency trading pair provided by the exchange is only USDT, and other stable currencies such as USDC and GUSD have almost no liquidity for USDT to exchange local fiat currencies.
Judging from the trading volume of each trading pair on the largest Binance exchange, the first choice for most fiat currencies to cryptocurrency is still USDT, rather than direct exchange for BTC or ETH. Even on the Binance exchange, various fiat currencies are still a niche choice against BUSD, and the trading volume is far less than that of USDT. The global liquidity of USDT and the connection between the real economic life in the world are difficult for other stable coins to shake.
The dream of a digital dollar
Currently, in the crypto space, USDT’s biggest competitor is USDC. Although USDT and USDC seem to have the same goal: to become a de facto digital dollar. The growth logic of the two is different.
USDT relies on transaction scenarios (higher liquidity requirements), while the growth of USDC largely depends on the demand for lending and yield farming brought by DeFi.
The continued high growth of USDC needs to continue to penetrate into the DeFi ecosystem, but one of the current growth problems is that under the situation of parallel public chains, various public chain ecosystems are trying to launch and promote USD stablecoins in the ecosystem. BSC has BUSD, Terra and Cosmos ecology have UST, and the new DeFi gang has MIM, which will weaken the influence of USDC in the DeFi ecology to a certain extent.
Last year, USDC also suffered a crisis of confidence. USDC has promised that its capital reserves are entirely composed of US dollar cash. Circle’s reserves report released in July 2021 shows that 61% of its reserves are in cash and U.S. Treasury bonds, and the rest of its capital reserves include Yankee certificates of deposit (13%). ), commercial paper (9%), corporate bonds (5%), municipal bonds and U.S. agency bonds (0.2%), which also drew criticism and doubts, and Cricle said it would convert USDC reserves into 100% cash and Short-term U.S. Treasuries. In October, Circle said it received an investigative subpoena from the SEC for some project information.
Although they are all free riders with U.S. dollar hegemony, the current liquidity and high availability of USDT in the world in turn strengthens the hegemonic currency status of the U.S. dollar for pricing digital assets. The existence of stablecoins has prompted the world to increase the number of digital dollars. Users, strengthen the status and penetration of the US dollar in the online world and the world.
Stablecoins not only function within blockchain exchanges, but also have a huge impact on the real-world political economy. The fast and low handling fee of USDT has become an exchange tool for cross-border transactions to avoid the peeling of traditional bank fees. It has also become a hedging tool in areas with large currency fluctuations, and even directly replaces local currencies.
In December 2021, the National Unity Government (NUG), a shadow government established against the Myanmar government, announced that USDT would be used as the official currency to avoid monitoring and circulate in the country, and at the same time, it would issue government bonds in USDT.
Last year, during the depreciation crisis of the Turkish fiat currency, a large amount of TRY was replaced by USDT as a safe haven. Recently, dental clinics in Taiwan began to accept USDT as payment for diagnosis and treatment. It can be seen that the stable currency value of USDT has formed a considerable consensus around the world. , are producing many application scenarios that are actually used for transaction payment, which is irreplaceable for other stable coins.
In addition, the U.S. government’s seemingly tough stance on stablecoins may only be the position of a small number of cryptocurrency policy conservatives, and the actual situation is more volatile. At the recent U.S. Senate Banking Committee Stablecoin Hearing, Democratic Senators Elizabeth Warren and Sherrod Brown argued that all stablecoins are potentially dangerous scams and should be vigorously cracked down, while Republican Senator Patrick Toomey proposed a harmonious, encouraging blockchain A stablecoin regulatory framework for technological development.
Connor Spelliscy, founder and researcher of the Blockchain Association, a US blockchain policy lobbying group, believes that the existence of stablecoins will not endanger the US dollar, but can expand the circulation of USD, create more demand for the use of USD, and help maintain the hegemony of the US dollar. Therefore, cracking down or rejecting stablecoins will only hurt the current status of the dollar.
Therefore, from a macro perspective, before the digital dollar stable currency that can be fully controlled by state power can replace the status of USDT, excessive supervision of the current largest dollar stable currency USDT will harm the hegemony of the US dollar and the global influence of the United States. Unwise move, the probability of actual occurrence is not high.
However, the absence of USDT in the vigorous development of decentralized applications is another concern for future development. Currently, there is a lack of star Dapp application services with USDT as the core. Only the more popular DeFi services will use USDT, and the decentralized exchange Uniswap WETH and USDC are the main ones, while PancakeSwap is mainly based on WBNB and BUSD. The NFTs and GameFi emerging this year are rarely priced or traded in USDT, which is the hidden worry.
To sum up, USDT has excess asset reserves and has a liquidity advantage. It is not only the core stable currency for centralized transactions, but also slowly penetrates the chain, becoming a bridge connecting the encrypted world and the legal currency world . Acting as a digital dollar in the actual sense, this trend and status is difficult to break.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/looking-forward-to-the-king-of-usdt-liquidity-and-the-dream-of-digital-dollar/
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