Will the stablecoin landscape change? Tether faces dual challenges of compliance and competition, while a new batch of miners enters the market

Author: Nancy, PANews

Stablecoins are the cornerstone of liquidity in the crypto ecosystem, and competition is naturally fierce. Under the intense pressure from both new and old players, the "number one brother" Tether has begun to accelerate its diversification efforts, and the market landscape is quietly changing due to regulatory compliance trends.

New Profit Highs from Traditional Assets, Accelerating Exploration of Diversified Business

Tether is undoubtedly the "money-making king" in the stablecoin arena. According to Tether's second-quarter audit report, Tether Holdings achieved a net profit of $5.2 billion in the first half of 2024, setting a historical high. Among them, the net operating profit for the second quarter was $1.3 billion, marking the highest quarterly profit to date. From this report card, Tether's massive profits are comparable to those of many traditional giants, including about 72.5% of Goldman Sachs' profit in the first half of the year ($7.17 billion) and 80.2% of Morgan Stanley's profit during the same period ($6.48 billion). However, Tether operates with a team of only about 100 employees, meaning each employee generated a profit of $50 million in six months, while Goldman Sachs and Morgan Stanley have approximately 45,000 and 80,000 employees, respectively.

However, Tether's "money printing machine" profitability mainly benefits from the high yields of traditional assets. According to Tether's data disclosure, the company's holdings of U.S. Treasury bonds exceed $97.6 billion, reaching a historical high, making it one of the top three global buyers of U.S. short-term Treasury bills, surpassing countries like Germany, the UAE, and Australia. Currently, rising U.S. interest rates are driving significant increases in Treasury yields, which in turn enhances Tether's profitability.

Moreover, although USDT still holds an absolute advantage, accounting for nearly 70% of the market share with over 300 million global users, it is facing attacks from competitors. According to DeFiLlama data, from the beginning of this year to now (August 15), the market capitalization of stablecoins has increased by nearly 28.4% to $166.96 billion. During this period, while other competing products still lag far behind USDT in scale, their growth rates have exceeded USDT's by nearly 27.2%, with USDC growing by about 42.3%, USDe rising over 239.5%, and PYUSD increasing nearly 227.2%.

Tether has proposed countermeasures in response. In the stablecoin field, Tether has not only adjusted its support for products across different blockchains, prioritizing support for community-driven blockchains, but also launched a new synthetic dollar platform, XAU₮, in June this year. This platform is backed by real physical gold stored in Switzerland, over-collateralizing TetherGold. However, according to CoinGecko data, as of August 15, XAU₮ has a market capitalization of $600 million, only 0.5% of USDT's scale. Additionally, Tether has collaborated on several USDT-related businesses to expand its influence, such as partnering with Uquid to launch a 1 USDT store, which garnered over 47,000 transactions within just 10 days of its launch.

On the other hand, Tether has begun to vigorously promote its vision of being a "financial ecosystem builder." Since Tether announced the establishment of four major departments—data, finance, energy, and education—in April this year to expand its business beyond USDT products, it has launched an intensive offensive in the past few months.

For example, in emerging markets like AI, Tether is not only developing decentralized AI models but has also invested over $2 billion in biotechnology company Blackrock Neurotech and data center operator Northern Data Group.

This week, Tether CEO Paolo Ardoino emphasized that Tether is well-funded, having accumulated profits of about $11.9 billion over the past two years, and currently earns a profit of 5.5% from its reserves. The company plans to venture into unknown fields like AI to compete with companies such as Microsoft, Google, and Amazon. Additionally, Paolo Ardoino recently revealed that Tether is preparing to launch a new open-source project, although he did not disclose more specific information, he emphasized that this will be an important part of Tether's future ecosystem.

In education, Tether has also partnered with the Vietnam Blockchain Association to jointly promote blockchain and AI education in Vietnam, signed a memorandum of understanding with BTguru to advance digital asset education in Turkey, and collaborated with Taipei University of Technology to launch a "Blockchain and Digital Assets" education program.

Furthermore, Tether has increased its investment in the ecosystem, with its investment department expected to invest over $1 billion in the next 12 months. For instance, Tether invested $100 million to acquire shares in the listed mining company Bitdeer and became its second-largest shareholder, and made a strategic investment of $18.75 million in the compliant blockchain financial institution XREX Group to promote USDT-based cross-border payments and innovate regulatory technologies in emerging markets.

Possible Exit from the European Market Due to EU Stablecoin Regulations, Tether Increases Compliance Spending

Compliance issues have always been a thorny problem for Tether. Especially now, with the EU's Markets in Crypto-Assets Regulation (MiCA) regarding stablecoins officially taking effect, stablecoins that conduct over 1 million transactions daily or have a total value exceeding €200 million (about $215 million) must obtain relevant authorization to operate in the EU, thus posing compliance challenges for stablecoins including USDT.

As a result, many crypto projects have taken countermeasures; for example, the crypto exchange Bitstamp has delisted Tether's euro stablecoin EURT and other stablecoins. An article on the Bretton Woods Committee blog also pointed out that stablecoins not compliant with MiCA regulations will "disappear" from the EU market in the medium to short term. "Increasingly stringent stablecoin regulations may pose significant challenges to Tether's market dominance. If it cannot comply with these new regulations, Tether's dominant position in the stablecoin market will be threatened," JPMorgan noted in a research report.

According to information on Tether's transparency page, as of August 15, the net circulation of Tether's euro stablecoin EURT exceeded €28.26 million, second only to USDT. In contrast, Circle, as the largest competitor to USDT, has already become the first global stablecoin issuer to obtain a license in the EU.

Ardoino responded by stating that Tether has officially formulated a strategy for the European market, but he believes that the regulation poses a threat to stablecoins and also constitutes systemic risk to the entire banking system. MiCA requires that at least 60% of stablecoin reserves must be held in EU bank accounts, a provision that may increase systemic risk. Banks operate on a fractional reserve system, making them vulnerable to runs, and Ardoino cited the 2023 Silicon Valley Bank collapse as a warning, believing that this regulation could adversely affect large-scale stablecoin issuers.

In fact, Tether has been strengthening its compliance efforts. In addition to previously reported increases in lobbying expenditures due to strong regulatory trends, Tether recently announced plans to double its workforce in the next year to enhance its capabilities in compliance and other areas, with an expected employee count of about 200 by mid-2025.

More Stablecoin "Prospectors" Entering the Market

The stablecoin arena is not lacking in competitors. Recently, the stablecoin market is welcoming a new batch of players, including those from crypto-native protocols and traditional financial backgrounds.

sGYD

The stablecoin project Gyroscope has announced the launch of its yield-bearing stablecoin Savings GYD (sGYD), aiming to pay token holders an annual yield of 12%-15%, depending on market conditions.

RLUSD

Ripple's stablecoin RLUSD recently announced the start of beta testing for its new stablecoin RLUSD on the XRP Ledger (XRPL) and Ethereum mainnet, with plans to expand to other blockchains and decentralized finance (DeFi) protocols over time. RLUSD is pegged 1:1 to the U.S. dollar and is 100% backed by U.S. dollar deposits, short-term U.S. government bonds, and other cash equivalents. These reserve assets will be audited by a third-party accounting firm, and Ripple will publish proof monthly.

sGYD

The DeFi protocol Gyroscope also announced this month the launch of its new yield version of the stablecoin, Savings GYD (or sGYD), aiming to pay token holders an annual yield of 12%-15%, depending on market conditions. The income comes from token-supported assets, which are stored in isolated vaults for various DeFi investment strategies.

HKDR

The HKDR stablecoin, pegged to the Hong Kong dollar, is launched by YuanCoin Technology and will integrate with the Chainlink Cross-Chain Interoperability Protocol (CCIP) to enable secure and reliable cross-chain transfers, reaching more diverse users. YuanCoin Technology will utilize Chainlink's Proof of Reserve (PoR) feature to provide reliable on-chain verification for HKDR's reserves. YuanCoin Technology's subsidiary, YuanCoin Innovative Technology Limited, has been included in the Hong Kong Monetary Authority's (HKMA) stablecoin issuer sandbox program to test various use cases for HKDR, such as digital asset trading and cross-border trade payments.

JD Stablecoin

In July this year, JD.com announced plans to issue a cryptocurrency stablecoin pegged 1:1 to the Hong Kong dollar in Hong Kong. The JD stablecoin is a stablecoin based on a public blockchain and pegged 1:1 to the Hong Kong dollar (HKD), to be issued on a public blockchain, with reserves consisting of highly liquid and trustworthy assets securely stored in independent accounts at licensed financial institutions, with strict verification of reserve integrity through regular disclosures and audit reports. JD Coin Chain Technology (Hong Kong) is a participant in the HKMA's announced stablecoin issuer sandbox.

XUSD

XUSD is a stablecoin pegged to the U.S. dollar, launched by digital asset payment infrastructure StraitsX, which has obtained an MPI license from the Monetary Authority of Singapore to provide more comprehensive digital payment services.

USDH

The DeFi protocol Hermetica also launched a Bitcoin-backed stablecoin USDH in July this year, which can always be exchanged for Bitcoin worth $1, providing users with a non-custodial option aimed at eliminating the need for Bitcoin users to rely on centralized exchanges or alternative fiat-backed stablecoins on-chain.

USBD

USBD is a Bitcoin-backed stablecoin launched by stablecoin developer Bima Labs, which can be minted by providing Bitcoin liquidity staking and re-staking tokens as collateral, accepting collateral from multiple blockchains, including Bitcoin, Bitcoin scaling networks, Ethereum Virtual Machine (EVM) compatible networks, and Solana. Bima Labs announced in July this year that it has completed a $2.25 million seed round of financing led by Portal Ventures.

In addition, financial institutions such as France's SG Forge, stablecoin company StablR, European fund giant DWS, and crypto market maker DWF are either about to or have already obtained stablecoin issuance qualifications. With regulatory games and new participants accelerating their entry, the stablecoin landscape may witness more changes.