Kaiko Research Unveils the Mystery: Tether’s Market Cap Surges to All-Time Highs

In the midst of a prolonged period of stagnant crypto trade volume and prices, Tether, the largest stablecoin by market cap, is defying expectations by rapidly approaching a new all-time high.

According to Kaiko research, Tether’s total supply currently stands at a staggering $82.9 billion. This raises the question: Why is Tether’s market cap increasing significantly when trade volume remains lackluster?

Source: Kaiko Research

Tether, also known as USDT, has emerged as the go-to stablecoin for trading on centralized exchanges (CEXs), with over 50% of all trades executed using this digital asset. On decentralized exchanges (DEXs), however, USDC, another popular stablecoin, maintains its dominance, although USDT still retains a healthy market share.

One plausible explanation for Tether’s climbing market cap could be attributed to the recent end of BUSD and USDC’s de-pegging event in March. This may have prompted a rotation of funds into USDT. However, the data does not demonstrate a significant increase in USDT market share relative to other stablecoins in recent months, primarily due to Binance’s promotion of TUSD as an alternative to BUSD.

Examining DEXs, USDT accounts for only 20% of non-stablecoin swap volume, marking an increase since the beginning of the year. Yet, this alone cannot justify the more than $15 billion surge in market cap during the same time frame. While the March banking crisis did witness a considerable inflow of capital into USDT, the actual usage of the stablecoin on both CEXs and DEXs seems disproportionately high given the observed trade volume.

Traditionally, changes in Tether’s market cap have loosely correlated with fluctuations in trade volume, with occasional surges during periods of notable market activity. However, at present, the correlation appears to be nonexistent.

One potential explanation for Tether’s surging market cap lies in the Tron network. The majority of USDT, approximately $46 billion, is issued on Tron, whereas only $36 billion is issued on Ethereum. It is intriguing to note that Tron, despite its minimal DeFi activity and lack of support from major exchanges like Coinbase, has become the preferred network for issuing USDT. Offshore exchanges such as Binance and OKX hold the largest USDT balances on Tron, indicating that market makers and whales favor this network for its low transaction fees.

In contrast, when examining USDC, a different stablecoin, a clear correlation emerges between trade volume and market cap. As USDC’s volume increases, its market cap grows in tandem, and vice versa.

The disparity between Tether’s market cap and trade volume raises questions about the stablecoin’s primary use case, which is trading. While Tether has historically been associated with market activity, its current detachment from trade volume is questionable.

As the crypto market continues to evolve, it remains to be seen how Tether’s market cap will be affected by changing dynamics and growing competition from other stablecoins. The enigmatic relationship between Tether’s market cap and trade volume calls for further analysis and scrutiny to understand the underlying factors driving this peculiar phenomenon.

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