The avalanche of the crypto world has caused a lot of wealth to evaporate instantly, and the shortage of money in the currency circle is obvious. The surge in trading volume after the crash is calling for more stablecoins to enter the trading market.
In this context, Tether “printed” as much as 1.575 billion USDT in 30 days, which is in line with the needs of the crypto market. USDK, USDC, GUSD and other stablecoins have also entered a blowout development, printing money faster than the Fed.
Coinmarketcap just updated its chart which shows a jump in the Tether market cap.
So, in the context of a bear market, why can stablecoins develop so quickly? Why is the cryptocurrency world so dependent on stablecoins.
480 million USDT added in six days, Tether prints money faster than the Federal Reserve
The latest data from Tokenview shows that from March 25 to March 30, Tether issued a total of 4 USDT batches, each with 120 million U.S. dollars and a total of 480 million U.S. dollars. Changed the previous practice of issuing up to $ 60 million each.
In the past month, Tether has issued $ 700 million in new tokens. In just one month, the total market value has increased by 22%, and Tether can print money faster than the Fed.
USDT is not the only stablecoin to increase its market cap.
At present, the total market value of 7 digital currencies including USDT, USDC, PAX, TUSD, DAI, GUSD, and BUSD has soared from US $ 5 billion at the end of 2019 to the current US $ 7 billion, a growth rate of 40%. Among them, most of the market value comes from USDT.
In contrast, the total market value of more than 5,000 cryptocurrencies worldwide has fallen from 350 billion U.S. dollars at the end of 2019 to the current 182 billion U.S. dollars, a drop of more than 40%. The market value of the seven stablecoins can “head up”, which fully illustrates the market space and huge potential of stablecoins.
So why does the market need so many stablecoins, and where are these newly issued stablecoins?
Where did the printed money go?
In the real world, the fiat currency issued by the central bank is distributed to enterprises and residents through many commercial banks to expand reproduction and consumption investment. The central bank adjusts the size of commercial banks’ deposits and loans through the deposit reserve ratio. The money that enters the market through commercial banks is collectively called M2.
So, who is playing the role of “central bank” and “commercial bank” in the cryptocurrency world? Before answering this question, let’s analyze a set of USDT token circulation data.
From March 12 to March 22, the USDT issued additional tokens on Ethereum for analysis. As a whole, at least 17 business entities ’wallets participated in the distribution process during this period. Of these business entities, exchanges accounted for the bulk of the transactions and lending platforms accounted for a small portion, including Bitfinex, Okex, Nexo, RenrenBit and other well-known exchanges or institutions.
The stablecoins that entered the exchanges and institutions entered the hands of financial investors through exchanges and loans.
From this point of view, in the crypto world, stablecoin issuers are equivalent to central banks; exchanges and lending platforms are equivalent to commercial banks; cryptocurrency investors are equivalent to consumers in the traditional financial world. It shows that the cryptocurrency world still follows the traditional financial laws.
It can be seen that Tether, which plays the role of central bank, mainly issues a huge amount of USDT to be connected with institutions, and then injected into the market through institutions. Just like the Fed, except for extreme cases like the coronavirus epidemic, they will not directly send money to US citizens, but will inject liquidity into the market through means such as national debt.
It is worth mentioning that, due to the controversial discussion whether USDT is backed or no, each time Tether issued additional USDT, it will be violently attacked. However, the recent criticism seems to be much less. The fundamental reason is the increase in market demand.
Especially after March 12, after Bitcoin experienced an epic plunge, the market’s wealth has evaporated and the entire market is extremely short of money, resulting in a shortage of USDT supply and a USDT premium of up to 6%. Under this background, Tether Company continued to issue additional USDT to meet the market demand, and the USDT premium decreased accordingly, reducing transaction and investment costs, which was naturally welcomed by investors.
If you compare this phenomenon to the traditional financial world, it is not difficult to understand the reasons behind it. In the traditional financial field, once a liquidity crisis occurs in the market, the central bank often reduces deposits by reducing deposit interest and deposit reserve ratios, and at the same time increases the motivation for bank lending, thereby solving the liquidity crisis in the financial market.
However, in the crypto world, although Tether plays the role of “central bank“, it does not have functions similar to the Federal Reserve’s QE and reduce the interest on deposits, nor does it have the function of reducing the deposit reserve ratio of the People’s Bank of China. All it can do is to continuously release it to the market.
At present, Tether not only speeds up printing money but also has a wider way of printing money. In addition to the Omni protocol, the Ethereum network, and TRON, Tether is also developing a token issuance path based on the BCH network and the Algorand public chain.
The future of stablecoins
In fact, the prosperity of the stablecoin market has far-reaching significance.
Cryptocurrency rating agency Weiss Ratings posted on Twitter that with the creation of negative US interest rates, it is no longer a good option for people to deposit money in banks. The stablecoin is pegged to the US dollar 1: 1. Holding stablecoins makes more sense than holding dollars. The original financial system is showing its flaws.
What role can the stablecoin market play in this increasingly volatile financial market?
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