Indeed, Bitcoin accounts for almost 70% of all the digital-asset global market value, but you’d be forgiven to think that it is the most widely used crypto in the world.
While concrete data on trading volumes is hard to be revealed in this usually murky sector of finance, figures from CoinMarketCap.com indicate that the token with the most daily and monthly trading volume is Tether, which is 30 times smaller than Bitcoin in terms of market capitalization.
Tether’s trading volume outpaced Bitcoin for the first time in April and has continuously transcended it since the start of August at around $21 billion per day, the data source revealed.
With Tether’s monthly volume around 18% higher than Bitcoin, it’s arguably the most crucial coin the cryptocurrency ecosystem. Tether is also among the reasons why regulators view cryptocurrencies with a wary cautious eye, and have blocked crypto exchange-traded funds amid concern of market manipulation.
“If there is no Tether, we lose a massive amount of daily volume — around $1 billion or more depending on the data source,” said Lex Sokolin, global financial technology co-head at ConsenSys, which offers blockchain technology.
“Some of the concerning potential patters of trading in the market may start to fall away.”
Coins with Biggest Daily Trading Volumes
In billions of U.S. dollars
- Tether – 20,790,721,778
- Bitcoin – 17,279,220,906
- Ethereum – 7,725,511,214
- Litecoin – 2,548,778,107
- Bitcoin Cash – 1,917,335,827
- EOS – 1,767,251,156
- XRP – 1,353,675,702
- Tron – 705,376,875
- Ethereum Classic – 568,570,716
- Paxos Standard – 367,122,707
Values as of Sept. 27, 2019
Tether is the most used stablecoin in the world, and is also the pathway for the most of the world’s active traders into the cryptocurrency market.
In countries such as China where cryptocurrency exchanges are barred, people can pay cash over the counter to acquire Tethers with very little interrogation, according to Sokolin. They can then trade Tethers for Bitcoin and other crypto.
“For many people in Asia, they like the idea that it’s this offshore, opaque thing out of reach of the U.S. government,” said Jeremy Allaire, chief executive officer of Circle, which supports a rival stablecoin known as USD Coin. “It’s a feature, not a problem.”
Tether, currently being sued by New York for allegedly mixing funds including reserves, claims using a KYC form and approval process is required to issue and redeem the cryptocurrency.
According to Allaire, Asian traders account for around 70 percent of all cryptocurrency trading volume, and Tether was used in 40 percent and 80 percent of all transactions on two of the global leading exchanges, Binance and Huobi, respectively, Coin Metrics claimed earlier 2019.
Theddeus Dryja, a research scientist at the Massachussetts Institute of Technology, said that many people lack the basic knowledge of how to use Tether.
And since traditional banking institutions worry that crypto don’t sniff out money launderers and criminals well enough, most cryptocurrency exchanges are still yet to open bank accounts and still can’t hold customers’ dollars. As such, they use Tether as an alternative, Dryja added.
“I don’t think people actually trust Tether — I think people use Tether without realizing that they are using it, and instead think they have actual dollars in a bank account somewhere,” Dryja said, adding that some exchange platforms mislabel their pages to show the impression that customers are holding dollars instead of Tethers.
The manner in which Tether is managed and governed makes it a complex offering. Whereas no one owns Bitcoin, Tether is issued by a Hong Kong-based private firm whose proprietors also run the Bitfinex cryptocurrency exchange.
The exact way by which Tether’s supply is increased or reduced is not clear. The amount of the supply that is covered by fiat stocks is in unknown too because Tether is not independently audited.
Tether revealed in April that 74 percent of the Tethers are covered by cash as well as short-term securities, while it previously stated it has a 100 percent reserve.
This disclosure was part of an ongoing probe into Tether by the New York Attorney General, which accused the firms behind the stablecoin of a cover-up to hide the loss of $850 million of commingled client and corporate funds.
Prof. John Griffin from the University of Texas at Austin said that nearly half of Bitcoin’s run-up in 2017 was caused by market manipulation by the use of Tether. Bloomberg reported last year that the U.S Justice Department is probing Tether’s role in this market manipulation.
“Being controlled by centralized parties defeats the entire original purpose of blockchain and decentralized cryptocurrencies,” Griffin said.
“By avoiding government powers, stablecoins place trust instead in the hands of big tech companies, who have mixed accountability. So while the idea is great in theory, in practice it is risky, open to abuse, and plagued by similar problems to traditional fiat currencies.”
On the opposite end, since Tether is vital to their growth, many cryptocurrency exchanges would likely be much willing to bail it out if needed, according to Dan Raykhman, former head of trading technologies for Galaxy Digital and who is now developing a platform for issuing crypto.
“There’s this implicit support from all these exchanges to help Tether stay afloat,” he said.
Over the past year, multiple stablecoins have emerged, of which many of them are independently audited and regulated, but Tether is by far still the favorite.
“Tether has been around since 2014 — ancient antecedents in crypto –and has retained its value,” said Aaron Brown, an investor and a writer for Bloomberg Opinion.
“I don’t say it’s perfect, but its convenience outweighs its risk for many people.”