As Tether Supply Hits Record Highs, It Moves Away From Original Home

Tether growth is hitting new all-time highs across multiple blockchains, but the first protocol to support Tether is being left behind.

AccessTimeIconMay 5, 2020 at 2:35 p.m. UTC
Updated Sep 14, 2021 at 8:36 a.m. UTC

Tether growth is hitting new all-time highs across multiple blockchains, but the first protocol to support Tether is being left behind.

Omni Layer, built on Bitcoin, has suffered negative growth in Tether transactions for the last 12 consecutive months. Tether supply on Omni Layer has also fallen more than 50% over the same period, according to Coin Metrics.

Omni Layer’s Tether supply peaked in mid-2018 at just over $3 billion. Tether tokens first launched on Omni Layer in October 2014. While fluctuations in stablecoin supply and transaction counts happen regularly, it’s unusual for there to be a contraction in supply for months at a time, especially for Tether.

Omni Layer was the only one to support Tether for over three years until the stablecoin launched as an ERC-20 token on Ethereum in November 2017. In less than two years, Ethereum’s share of Tether’s total circulating supply eclipsed Omni Layer’s.

Tether's year-to-date supply and transaction count on Omni
Tether's year-to-date supply and transaction count on Omni

Disparate Tether growth across different protocols probably is due to “current demand on each chain,” said Sean Gilligan, developer at Omni Layer. Tether can move unused tethers on Omni Layer to another chain with higher demand by issuing a simple “revoke” transaction, Gilligan explained.

'Crazy expensive' reason for the move

Performance concerns across Tether-supported protocols seem to be driving demand on platforms like Ethereum and away from Omni Layer.

“I think it mostly comes down to Ethereum being much better payment rails for something like Tether and other stablecoins,” said Anthony Sassano, adviser to mStable, a stablecoin unification protocol.

Transaction fees and confirmation times were the primary reasons Tether decided to evolve its stablecoin into a cross-chain asset supported by multiple protocols, according to Paolo Ardoino, CTO at Tether.

At Tether, we truly care for Omni, since it was the first protocol that made Tether possible, and it also relies on Bitcoin security. But we had to give traders what they were asking for.

Traders were routinely worried about sudden spikes in Bitcoin transaction fees that caused arbitrage trades to become “crazy expensive,” said Ardoino. The other concern, confirmation times, resulted from some exchanges waiting for three Bitcoin blocks to credit Omni Layer transactions, which could mean “losing the moment in the market.”

“Omni on Bitcoin provides users with multisig and a level of robustness that other chains may lack, while some chains may have lower transaction fees or faster blocks,” said Craig Sellars, co-founder of Tether and chief technologist of Omni. “It’s all about the users’ preference as to which capabilities they want to imbue their digital dollars.”

Multisignature (multisig) security means more than one digital signature is required to execute a transaction.

Ethereum currently holds the lion’s share of Tether’s supply, with nearly 3.5 billion tokens issued on Ethereum since February. Tron, a protocol similarly optimized for token issuance, holds nearly as many tokens as Omni Layer, at the time of publication.

“At Tether, we truly care for Omni, since it was the first protocol that made Tether possible, and it also relies on Bitcoin security. But we had to give traders what they were asking for,” said Ardoino.

Tether supply change on Omni, Ethereum, and Tron
Tether supply change on Omni, Ethereum, and Tron

“A faster, cheaper ledger with more granular levels of control is much more useful to [Tether],” said Eric Wall, chief investment officer at Arcane Assets. “USDT, by virtue of being a centralized asset, does not benefit much from Bitcoin's expensive state-attacker-grade censorship-resistance.” 

Censorship resistance to coordinated attacks from state governments is a primary feature of established cryptocurrencies like Bitcoin. For stablecoins, however, the benefits of this high-level security may be limited. 

One stablecoin for different blockchains

To date, Tether has tested eight different protocols: Omni Layer, Ethereum, Litecoin, Tron, EOS, Algorand, Liquid Network and Bitcoin Cash. All of them currently support Tether except Litecoin. 

In fact, Tether’s cross-chain evolution is a dominant competitive strategy for the stablecoin. Tether quickly seized on the simple growth strategy of providing each blockchain community with access to the cryptocurrency industry’s oldest and most liquid stablecoin.

“Each of these blockchains need a stablecoin in order to implement DEXes, DeFi projects and many other projects,” said Ardoino. “It's astonishing that till today our competition did not realize that yet,” he said. 

“I think that USDT will continue to be a multi-blockchain asset,” said Sassano, adding that the status quo rate of Ethereum use and development makes him think most of Tether’s supply will “live on Ethereum for the long term.”

Regardless of what the future holds for Tether’s continued growth, the Omni Layer will always consider itself to be a special place for Tether. “Omni Layer on Bitcoin is [Tether’s] home, but it has other places to go when it wants to go skiing or skydiving,” said Sellars.

UPDATE (May 5, 2020 15:04 UTC): The percentage decrease in Tether supply on Omni has been updated for accuracy.


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