Sprawling DeFi Sector Pushes Tether (USDT) to $15 Billion

The USDT market has increased by around $3 billion in the last month alone. Some see the expansion of the stablecoin and its rising use in DeFi protocols as a concern. Ongoing legal issues could prompt action against the company that backs the stablecoin. Meanwhile, recent developments highlight the centralized nature of Tether due to the firm’s control over various aspects of the network.

Tether Use Soars as DeFi Continues its Expansion

Tether (USDT) is now worth more than $15 billion. The leading stablecoin’s integration with DeFi protocols, such as Aave, Compound, and more recently, Solana, appears to be a significant driver behind its growth.

Tether has just surpassed a $15 billion market capitalization! 🎉

In only one month, Tether’s market cap has increased by more than $3 billion, maintaining its number one spot as the most liquid, stable and trusted currency! pic.twitter.com/MLOWkiIDvF

— Tether (@Tether_to) September 17, 2020

BeInCrypto last reported on Tether as it crossed the $13 billion mark on August 26. In terms of weekly transaction volume, the dollar-pegged digital currency actually outpaced Bitcoin. Tether appears to be growing thanks to its symbiotic relationship with DeFi. It provides an opportunity for users to interact with decentralized financial protocols while limiting their exposure to the volatility of cryptocurrencies. This has likely allowed the USDT market to grow in tandem with the total value locked (TVL) in DeFi protocols. According to DeFi Pulse, TVL in DeFi hit $6.386 billion on August 17. Fast forward one month, and that figure stands at almost $8.9 billion. Over the same period, CoinGecko documents that Tether grew from $12.3 billion to over $15 billion.

Tether’s Growing Importance in DeFi

However, some cryptocurrency industry observers are concerned about Tether’s growing importance in DeFi. Tether recently demonstrated its control over USDT following the accidental transfer of one million of its dollar-pegged tokens by a DeFi user.

Use #DeFi projects at your own risk but if you do, at least make sure to user @Tether_to $USDt.

1M $USDt recovered and returned to the legitimate owner(s).https://t.co/dbbbaO3veb https://t.co/j3rkZtx12V

— Paolo Ardoino (@paoloardoino) September 11, 2020

Tether was able to return the funds by blacklisting addresses involved in the missing USDT. If Tether can censor DeFi transactions, it will likely also control aspects of the stablecoin at the request of law enforcement. Given the regulatory void that DeFi currently exists in, this may become an issue down the road should regulators clampdown. Tether has been no stranger to lawmakers. The company, and its sister firm, the Bitfinex exchange, have been involved in an ongoing legal battle with the New York Attorney General since April 2019.

Ongoing Legal Issues

Recent developments in the case saw the Office of the Attorney General (OAG) lose patience. In a letter filed Monday 8 Sept., the OAG stated that, after 17 months of delays, it was time for Tether to disclose requested financial information. The documents relate to allegations that Bitfinex had previously lost around $1 billion in customer funds and had used USDT reserves to cover the imbalance. However, Tether refutes the OAG’s request. The company’s legal counsel responded by arguing that USDT users are “well-protected” and the injunction was unnecessary. The firm has reportedly reduced Tether’s shortfall from 25% of the USDT market cap to just 4%. It claims that Bitfinex’s repayments and the growth of Tether allowed the backing of USDT more fully. However, some users think otherwise. Discussions on the Maker DeFi forums show that users are wary of Tether’s “financial and representational risk.” Despite some requests that the stablecoin be added to the platform, integration has not yet taken place. However, other platforms have recently integrated it. The latest being the Solana blockchain – a project with its own DeFi ambitions. As Tether entangles itself within the DeFi space, the greater the fallout may be following the OAG’s eventual verdict:

DeFi will not last long if the Tether scam is dealt a major blow and the $1 peg fails to hold anymore

— Kyle S. Gibson (@KyleSGibson) September 10, 2020

The growing market for Tether nevertheless suggests that users aren’t overly concerned about the legal battle. As Twitter user CasPiancey (@CasPiancey) highlights below, the number of USDT in circulation grew by around $1 billion in the few days following Bitfinex’s response to the OAG: https://twitter.com/CasPiancey/status/1306488258885419008