Tether beats bitcoin as most traded cryptocurrency in the world
Bitcoin may be the world’s most capitalised cryptocurrency asset but its popularity is being threatened by the rise of stablecoins. Tether which belongs to a new breed of cryptocurrencies called stablecoins overtook bitcoin on Monday as the most traded cryptocurrency on exchanges across the world.
Based on 24 hours volume, a report by Statista showed that $86.29 billion of Tether was traded compared to $51.85 billion for Bitcoin.
The difference is attributed to the cost of one bitcoin and the growing popularity of stablecoins. As of press time on Wednesday, one bitcoin was exchanging hands at $34,669 whereas Tether sold for $1.
What is Tether?
Tether refers to a blockchain-based cryptocurrency whose coins are backed by an equivalent amount of traditional fiat currencies such as the dollar, the euro, or the Japanese yen, which are held in a designated bank account. Tether tokens, the native token of the Tether network, trade under the USDT symbol.
Tether entered the world through the Realcoin project in 2014. It was renamed Tether in November 2014. As part of the entry strategy, Tether introduced three stablecoins including USTether which featured a 1;1 peg with the US dollar. Ideally, this means Tether trades at $1 on all exchanges and can be used in place of a dollar. However, in practice, the price tends to fluctuate a little.
The second coin was pegged to the Euro while the third coin focused on the Japanese Yen also known as the YenTether.
Tether was the subject of controversy in November 2017 because it was allegedly hacked with $31 million worth of Tether coins stolen. Following the incident, a hard fork was performed. But it was to enter another trouble in January 2018 when regulators found that the necessary audit to ensure that the real world reserve is maintained never took place. The platform received a subpoena from regulators.
Rise of stablecoins
A stablecoin refers to a new class of cryptocurrencies that attempts to offer price stability and are backed by a reserve asset. There are a number of stable coins in circulation today, and a number more have been attempted in the past (with varying degrees of success).
Stablecoins came to the limelight in 2018 with promises of improving financial access and creating a viable alternative for nations burdened by hyperinflation or experiencing friction in cross-border payments and remittance. As many as 120 stablecoin projects were created in 2018 according to data from Bloomberg.
The popularity of stablecoins soared from 2017 as users saw them as a tool to hedge risk as to the volatility of bitcoin and many other cryptocurrencies spiked wildly.
Tether’s market capitalisation surged from approximately $10 million at the beginning of 2017 to over $1.3 billion by the end of the year, representing a 130 percent increase. The coin’s market capitalisation is currently at $24.7 billion making it the third most capitalised cryptocurrency in the world after Bitcoin and Ethereum.
The success of Tether has also led to the rise of new stablecoins such as USDC, TUSD, DAI, PAX, and more recently exchange-specific stablecoins such as Binance USD (BUSD). All of them have one persistent trend, the ped to the US dollar.
The popularity of stablecoins recently received a massive boost as the US Office of the Comptroller of the Currency (OCC) announced in January 2021, that federally regulated banks now have the approval to carry out trade and other activities in independent node verification networks (INVNs) or use stablecoins to perform bank-permissible functions, such as facilitate payment transactions for customers.
According to the letter, the approval forms part of a strong framework for ushering in an era of stablecoin-based financial infrastructure, identifying important risks while allowing those risks to be managed in a technology-agnostic way.