Much of Tether’s $4.5 billion growth comes from trust money

Tether (USDT) recently moved up and has replaced XRP as the third best asset by market capitalization.

It now finds itself with a total of over USDT 9 billion in circulation, eclipsing competing stablecoins in trade volume and overall supply.

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Cointelegraph interviewed Paolo Ardoino, the chief technology officer (CTO) of Tether and Bitfinex, to find out the reasons behind the sudden increase.

Half of Tether’s total growth came after the infamous market crash on March 12, rising from $4.6 billion to $9.1 billion in the space of a few months. Ardoino revealed that this is no coincidence.

Old money that becomes stablecoins
Ardoino noted that „most people think that the large part of the Tethers that Tether’s clients got is definitely new money coming into space.

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But in reality, a very considerable part of that growth comes from „money stuck in trust exchanges that don’t allow stablecoins,“ Ardoino said. OTC tables and trading companies were Tether’s main customers during this transition, as they converted their significant trust holdings into a more flexible Tether.

The sluggishness of the banking system held a key to the hedging strategies adopted by professional traders on March 12, he said:

„You can see it happening after March 12th and 13th, because there was a great deal of understanding that when the 50% drop in the price of Bitcoin and Ethereum occurred, many hedge funds were unable to cover their position. …] Because if they keep their funds in fiat, it’s really difficult to move those funds fast enough to cover their position.

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For that reason, traders started looking for faster options than holding trust money directly. Part of the demand for USDT also came from the proliferation of derivatives exchanges that established transactions in Tether and other stablecoins:

„BitMEX started offering perpetual exchanges in 2014 using Corona Millionaire as collateral, but now Bitfinex, Binance, Huobi, OkEX, FTX, all are launching all their new USDT-settled products.

Bitfinex representatives clarified that Ardoino referred to a separate derivatives section offered by iFinex Financial Services Ltd.

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However, new money has also come into the picture, Ardoino said. While not found in the percentages, there are clearly two separate components to Tether’s growth:

„It’s not about new entrants to the cryptcoin market (that) is what people think, ‚Okay, the cryptcoin space just got 5 billion more money in terms of dollars. That’s not the whole story.