Behind the crazy issuance of USDT: Why doesn’t it increase in price?

The issuance of USDT has surged in recent months. As of press time on April 16, 2020, the current total amount of USDT exceeds 6.9 billion US dollars, compared to just over 2 billion US dollars a year ago, a three-fold increase in about a year. In particular, there has been a crazy surge in the last two months, from just 5 billion US dollars in the middle of last month to nearly 7 billion US dollars in just one month.

• Safe-haven demand

The global outbreak of COVID-19 has not only caused a decline in the stock market, but most importantly, it has caused unprecedented damage to economic fundamentals. It has led to unprecedented circuit breakers in the U.S. stock market, a once-in-a-century wave of unemployment in the United States, and a huge impact on most industries.

In this context, the cryptocurrency sector, which has always been an independent market, could not remain unaffected. Due to the lack of liquidity, Bitcoin and cryptocurrencies also plummeted, leading to a black swan event in the crypto sector.

In an environment of increasing uncertainty, people have a great need for risk aversion. However, risk aversion cannot be achieved through Bitcoin and cryptocurrencies with high volatility. In this case, many people prefer to hold stablecoins for risk aversion. This includes exchanging cryptocurrencies for stablecoins, which can avoid volatility risks. In addition to USDT, stablecoins such as USDC and BUSD have also seen significant increases.

In order to cope with the extreme volatility of cryptocurrencies, many users exchange their cryptocurrencies for stablecoins, which leads to an increase in the demand for stablecoins. As shown in the figure below, there are more than $800 million in stablecoins lying quietly on exchanges alone, most of which are USDT. However, the stablecoins of these users are more of a wait-and-see approach. Stablecoins are just a temporary haven for them.

(Source: TokenAnalyst)

• Value transfer requirements

Cryptocurrencies are inherently highly liquid, but due to the high volatility of cryptocurrencies such as Bitcoin, they are not suitable for value storage at the moment and are more suitable for speculation. Stablecoins issued based on blockchain have the characteristics of cryptocurrencies that they can be transferred quickly, while also being stable. At the current stage, this makes stablecoins more suitable than Bitcoin as a medium for value storage and circulation.

Some OTC users sell cryptocurrencies, exchange them for stablecoins such as USDT, and store them in crypto accounts instead of exchanging the funds for legal currencies such as the US dollar. In other words, these funds do not enter the traditional legal currency account system.

Cryptocurrency accounts are flexible and user-controllable. In order to meet the needs of its customers, OTC counters also have a demand for USDT. The actual scenarios also include international remittances and import and export transactions. The demand for value transfer, coupled with the dual role of risk aversion, has led to a surge in demand for stablecoins.

In recent times, the amount of value transfer on Ethereum has been close to that on Bitcoin, and more than 80% of the value transfer on Ethereum is the value transfer of stablecoins. From this data, we can understand why the demand for USDT has increased significantly.

(Source: MESSARI)

• Arbitrage Demand

• Speculative demand

• Storage requirements

The current lending rate of USDT is higher than that of traditional USD. For crypto users, it is better to deposit USD in the crypto system to earn higher returns than to deposit USD in the banking system. This also leads to the demand for USDT.

• The need to buy cryptocurrency

Currently, USDT is in circulation on Ethereum, Bitcoin (Omni), EOS, TRON and ALGO, of which 70% is on Ethereum, 22% is on Bitcoin (Omni), and the rest is on other networks.

Previously, the issuance of USDT was considered a signal of market buying, which often led to an increase in the price of the currency. However, in today's environment, the proportion of this factor is gradually decreasing. Of course, no matter what, once the market sentiment is bullish, the issuance of USDT is one of the important signals for people to enter the cryptocurrency market.

• Other requirements

For example, some people use USDT to pay on some websites, some to shop, and some to invest in the crypto industry. However, these demands are relatively small, although they exist. They will not have a big impact on the surge in USDT.

Conclusion

Due to the impact of COVID-19 and the shortage of USD liquidity, the uncertainty of the world economy has increased. The demand for risk aversion and value transfer is currently the biggest source of demand for USDT. The demand for purchasing cryptocurrencies and using USDT for payment is not the biggest demand at present. It can be said that stablecoins such as USDT have achieved a high degree of fit between their products and demand under the current circumstances. The current main driving force is not the purchase of cryptocurrencies, but the storage and transfer of value. Before the overall environment is reversed, this will be an important melody for a period of time. (Blue Fox Notes)

Solemn statement: The copyright of this article belongs to the original author. The article is reproduced for the purpose of spreading more information. If the author information is marked incorrectly, please contact us as soon as possible to modify or delete it. Thank you.