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Stablecoin surge: Tether’s headroom for growth

May 7, 2024

As an experienced financial analyst, I’ve closely followed the stablecoin market’s evolution over the past year. The rapid growth of Tether (USDT) and its dominance in the market is particularly noteworthy. With a current market cap of $157 billion and a record-breaking $4.52 billion profit from U.S. Treasury holdings, it’s no wonder that USDT has captured over 70% of the stablecoin market share.

As a crypto investor, I’ve noticed an impressive growth in the stablecoin market cap over the past six months. It jumped from $122 billion in October 2023 to an astounding $157 billion by April 2024. Among all stablecoin providers, Tether (USDT) has managed to secure a substantial portion of this expanding market. With a market cap exceeding $100 billion and over 70% dominance, USDT now reigns supreme in the realm of stablecoins.

Moving forward, Tether reported a remarkable earnings figure of $4.52 billion from U.S. Treasury securities in Q1 2024, resulting in a net income of $1 billion. Simultaneously, the number of active Tether wallets with non-zero balances reached a new high of 5.6 million as of April 28th.

This poses the question: What is the growth headroom for this stablecoin giant?

We explore the degree of decentralization in Tether wallets using the Herfindahl Index as a tool. Originally developed to assess market concentration, this index calculates the proportions of the total supply owned by individual wallets by adding the squares of each address’s balance within the network. A large score implies that the supply is concentrated among a few addresses, whereas a smaller score signifies a more balanced distribution among numerous addresses.

Stablecoin surge: Tether's headroom for growth

Up above, the Herfindahl indexes for various stablecoins are displayed: 0.00708164 for USDT, 0.00981202 for USDC, and 0.00331652 for DAI. Among the leading stablecoin suppliers, DAI exhibits the most balanced distribution of its supply across wallets, with USDT coming in second, and USDC trailing behind.

The addition of USDT to the TON network from the US, as announced by Telegram in April with their claimed 900 million monthly active users, might lower TON’s Herfindahl index and result in a more balanced supply of this stablecoin. This shift could lead to a noticeable change in the distribution of USDT wallets.
Stablecoin surge: Tether's headroom for growth
When examining the top three blockchain platforms and their stablecoin usage, TRON transactions are heavily dominated by USDT, with a dominance of 98.2%. On TRON, USDT transfers typically range from 95 cents to approximately $2, though gas fees can vary. Meanwhile, the TON wallet is natively integrated into the Telegram app, allowing users to conduct peer-to-peer USDT transactions within the TON wallet for free. Transactions between two USDT users outside the wallet reportedly incur a network fee of 0.0145 TON, which equates to about $0.09 as of May 6 2024.
Stablecoin surge: Tether's headroom for growth
As a crypto investor, I’m excited about the prospect of using USDT on the TON blockchain due to its lower transaction fees and faster processing times compared to TRON. This could entice me and many other users, especially in countries with large Telegram user bases such as India, Russia, the US, Indonesia, and Brazil, to make frequent small transactions on TON instead of TRON.

Many of these nations hold considerable influence in the international remittance sector. India stands out as a major recipient, with substantial funds coming from Indians living abroad. Russia experiences sizeable inflows from its expatriates in Europe and the former Soviet Union. Indonesia profits from remittances dispatched by its labor migrants in Malaysia and the Middle East. Conversely, Brazil is recognized for its large outflow of remittances, primarily through Brazilian immigrants in the US, Japan, and Europe.

The collaboration between Tether on the TON network and Tether’s substantial market presence, along with the prospect of a decentralized wallet system, may facilitate USDT’s growth within Telegram’s large user community. This expansion could lead to increased usage of USDT in prominent remittance markets.

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2024-05-08 19:20