Tether 2024 Q2 Financial Report: Earning Nearly 30 Million US Dollars a Day, But Still at Risk of Being "Out"?

Original title: "Tether's 10th anniversary: earning nearly $30 million a day, but still unable to escape the risk of being "out"? "

Original author: flowie, ChainCatcher

Last week, Tether released its Q2 2024 financial report. Tether's Q2 net operating profit reached $1.3 billion, and its profit in the first half of 2024 was as high as $5.2 billion, a record high.

Half-year profit of $5.2 billion, equivalent to nearly $30 million a day, is beyond the reach of many listed companies. But Tether, which has made a lot of money, may not be as glorious as the financial report shows.

On June 31, the EU's newly introduced "MiCA" law came into effect, which means that Tether's stablecoins are officially facing mass delisting in Europe. crypto exchanges such as Binance, OKX, Uphold, and Bitstamp have announced the removal of almost all USDT trading pairs in Europe due to the bill.

While competitor Circle has obtained legal permission from MiCA to sell its two stablecoins, USDC and EURC, in Europe.

Europe is the region with the largest scale of crypto adoption. According to a study recently released by CoinWire, Europe's cumulative cryptocurrency trading volume accounts for 37.32% of the global market.

Circle is taking away a significant market share from Tether. The CCData report shows that after the European regulations came into effect, the trading volume of USDC trading pairs on centralized exchanges increased by more than 48%.

Since its establishment in 2014, Tether, which has experienced many crypto-thunder storms and regulatory FUD, has now grown into a behemoth. Will Tether be "too big to fail" in the future, or will it still be difficult to escape the risk of being "out"?

USDC trading volume has surpassed USDT by a large margin many times

As the bull market begins, the market value of stablecoins continues to grow. According to the latest report released by CCData Research, as of the end of July, stablecoins have risen for 10 consecutive months.

USDT, as the largest stablecoin by market value, is also growing, dominating nearly 70% of stablecoin transactions. But a signal that cannot be ignored is that USDT's current biggest rival, USDC, has also seen a significant increase in market value and trading volume in 2024 since its monthly trading volume exceeded USDT for the first time in December 2023. In particular, it has surpassed USDT by a large margin many times in terms of trading volume.

Data jointly released by Visa and Allium Labs showed that on March 24, 2024, USDC's trading volume at the close of the week was almost five times that of USDT. On April 21, 2024, USDT's weekly trading volume shrank to $89 billion, while USDC increased to $455 billion.

According to Kaiko's report analysis, the reason for USDC's increasing popularity may be that users are increasingly adopting and preferring regulated stablecoins.

USDC's relatively compliant and regulated attributes also make it the first choice for large institutional clients to enter the crypto field.

This year, BlackRock launched the tokenized fund BUIDL, which is pegged to the US dollar at a 1:1 ratio, and holders can be similar to "securities" that have obtained an interest-bearing stablecoin. In order to ensure that investors can purchase/redeem stablecoins 24/7/365, BlackRock chose to cooperate with Circle to establish a smart contract-controlled USDC liquidity pool for investors.

After the European regulations came into effect in July, USDC trading volume surged again. CCData data shows that after centralized exchanges removed the European USDT trading pairs, the trading volume of USDC trading pairs increased by 48.1% to US$135 billion, a record high.

In addition to the growth opportunities in centralized exchanges, the growth of USDC on some active public chains this year cannot be ignored.

In August last year, Circle received a stake and support from Coinbase, which announced that it would launch it on 6 new chains.

On the Base public chain of Coinbase, USDC accounts for 91% of the total stablecoin supply. Base does not support USDT. Data on June 18 showed that the supply of USDC on the Base chain increased by more than 1,000% in the past 90 days.

On the Solana chain, Bankless shared a set of data on the X platform, "USDC accounts for about 70% of the total stablecoin supply on the Solana chain, and the trading volume of USDC and USDT on Solana this week is 19:1."

Bankless said that the reason why USDC dominates Solana is because of the strategy of Circle and Solana Foundation to incentivize developers and promote the integration of trading platforms.

For example, platforms such as Solend Protocol and Superteam in the Solana ecosystem provide developer rewards in the form of USDC, as well as the Cross-Chain Transfer Protocol (CCTP) launched by Circle on Solana and Circle's Web3 service rewards, which are all driving the growth of USDC on the Solana chain.

After the European crisis, compliance issues are still a potential bomb?

The view that FUD Tether due to regulatory compliance issues has never stopped.

In addition to the European "MiCA" bill, the "Lummis-Gillibrand Payment Stablecoin Act" proposed by US senators in April this year has also been pointed out by many institutions as a threat to Tether.

The "Lummis-Gillibrand Payment Stablecoin Act" requires the issuance of stablecoins with a volume of more than US$1 billion to implement the same strict supervision as banks, and encourage more banks to participate in the stablecoin market.

Rating agency SP Global pointed out that most of the current issuers of US dollar stablecoins, including USDT, which has the highest market share, are not subject to US regulations. However, if the bill is finally passed, it may prompt more banks to enter the stablecoin market and affect Tether's dominance.

A recent report from JPMorgan Chase also showed that US cryptocurrency regulation has been strengthened in recent months. Before the upcoming presidential election, the payment stablecoin bill is most likely to be passed, which will benefit compliant US stablecoins and threaten Tether's dominance.

The Deutsche Bank report also questioned Tether's operational stability and transparency.

Although Tether's trading activities mainly occur in emerging markets outside the United States, the United States is still one of the most important markets in the crypto field. If Tether does not respond, it may miss the market.

It may be based on an understanding of the trend of regulatory compliance or on considerations at the competitive level. This year, several founders of crypto companies have also warned that the next regulatory hammer may fall on Tether.

In May this year, Ripple CEO Brad Garlinghouse revealed on a podcast that since the collapse of FTX and the imprisonment of former CEO SBF, and the recent conviction and sentencing of former Binance CEO Zhao Changpeng (CZ), the next regulatory target of the US SEC is Tether.

Brad was then counterattacked by Paulo Ardoino, CEO of Tether, and the two were involved in a "war of words" for several days.

Ripple also announced the launch of a stablecoin pegged to the US dollar this year. Paulo believes that Ripple, as a competitor, is maliciously slandering Tether.

But Brad insisted that it was not a deliberate attack. He believes that the US government has made it clear that it wants to strengthen control over issuers of stablecoins backed by the US dollar. Therefore, Tether, as the largest participant, is among their concerns.

In March of this year, after Arthur Hayes' family office Maelstrom invested in the new stablecoin protocol Ethena, Arthur Hayes also published a long article on his personal blog, discussing why the Federal Reserve, the US Treasury and large US banks with political connections want to destroy Tether.

Arthur Hayes believes that Tether's full reserve banking model runs counter to the Federal Reserve's stated goal of reducing the amount of bank reserves to curb inflation.

And Tether is too big. Tether is now one of the largest holders of U.S. Treasury bonds. The growth of Tether and similar stablecoins serving the cryptocurrency market poses risks to the U.S. Treasury market.

In addition, Tether is too profitable and will attract competition from banks.

A speculative balance sheet and income statement prepared by Maelstrom analysts for Tether shows that Tether's revenue per employee is $62 million, and the eight "too big to fail" banks in the United States, represented by JPMorgan Chase, are difficult to match Tether's profitability.

It is expected that in the next year, in addition to the United States, important crypto regions such as Hong Kong, Singapore, Japan, the United Kingdom, and the United Arab Emirates will successively introduce comprehensive stablecoin regulatory rules.

After the gradual implementation of global regulatory laws and regulations, it may be difficult to determine whether Tether is really facing the risk of being eliminated.

Some people believe that the US government has no reason to cause trouble for Tether.

Checkɱate, an analyst at Glassnode, said that the USDT issued by Tether is essentially equivalent to the US CBDC. He believes that the existence of Tether has been tacitly approved by the US government. "USDT absorbs the US government's treasury bonds, thereby supporting the US finances."

In dealing with the relationship with government supervision, Tether CEO Paulo once refuted Brad and said that Tether has been cooperating with law enforcement agencies in different countries.

In the past three years, 339 requests have been blocked, of which 158 were in cooperation with US law enforcement agencies. ”

Some people believe that, like the US dollar, how USDT is abused has little to do with the issuing agency. As long as Tether cooperates with law enforcement agencies to freeze, the danger is not as high as imagined.

Tether currently has no clear and specific statement on how to deal with the withdrawal of the European Union and potential threats in other regions. But Tether may be trying to get rid of the unilateral control of the United States.

In June this year, Tether made a strategic investment of 18.75 million US dollars in XREX Group, a compliant blockchain financial institution.

XREX Group founder Huang Yaowen revealed in a media interview that after this investment, Tether and XREX will launch XAU1 in cooperation with the Unitas Foundation.

XAU1 is a unit currency that is supported by the excess reserves of Tether Gold (codenamed XAUt) and pegged to the value of the US dollar. It provides a robust financial alternative for stablecoin users and is also a hedge against inflation.

The purpose of launching XAU1 is to gradually make the US dollar neutral while maintaining the US dollar pricing that everyone is accustomed to, and not be unilaterally controlled by the United States. "Because Tether knows clearly that the money earned through the interest on U.S. debt is controlled by the Federal Reserve, not itself, so 80% to 85% of the money earned is used to buy gold from the Swiss gold mint."

In addition, Tether is also seeking business growth beyond stablecoins, expanding into multiple fields such as Bitcoin mining, AI and education.

Or in response to regulatory pressure, Tether is also increasing lobbying expenses. According to data from the nonprofit OpenSecrets, Tether's parent company iFinex increased its lobbying spending by more than 150% in 2023.

There is no shortage of predators in the "fat meat" of stablecoins

In addition to the hidden dangers of regulation, Tether has never lacked challengers.

At the beginning of last year, BUSD, which had been the third largest stablecoin, withdrew from the stage of history overnight due to regulatory pressure from the US SEC. However, the stablecoin market soon welcomed several players to fill its position.

Web2 payment giant PayPal launched the stablecoin PYUSD, and the stablecoin FDUSD, which is regarded as Binance's replacement for BUSD, also quickly emerged. In addition, old blue-chip DeFi such as Curve, Aave, and Frax are actively launching native stablecoins; some new forces of interest-bearing stablecoins that leverage LSD and RWA have also emerged.

And this year, BlackRock, mentioned above, launched a tokenized fund BUIDL similar to interest-bearing stablecoins, which to some extent also took a fancy to the profitable business of stablecoins.

In addition, some innovative stablecoin protocols are still rising strongly this year. Ethena's USDe is a new stablecoin supported by Ethereum derivatives. Since its launch on the mainnet in February, its market value has exceeded US$3 billion in half a year, becoming the fourth largest stablecoin after Dai.

The investment institutions behind Ethena are like a novel. In February this year, Ethena received $14 million in financing led by Dragonfly, Brevan Howard Digital and Maelstrom, the family office of BitMEX founder Arthur Hayes, and participated by PayPal Ventures, Franklin Templeton, Avon Ventures, Binance Labs, Deribit, Gemini and Kraken, with a valuation of $300 million. In July last year, Ethena also received $6.5 million led by Dragonfly.

This may also explain that some market players and capital believe that although Tether and Circle currently occupy almost most of the stablecoin market, the stablecoin landscape still has huge adjustments, which provides subversive opportunities for latecomers in terms of compliance, centralization risks, and how the benefits are distributed to users.

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